Clinton Group Calls Upon Wet Seal Board To Sell Company
NEW YORK, July 23, 2012 /PRNewswire/ -- Clinton Group, Inc. ("Clinton") today announced that it has sent a letter to the Board of Directors ("Board") of The Wet Seal, Inc. (Nasdaq: WTSLA) ("Wet Seal" or the "Company") urging the Board to return cash to shareholders and to sell the Company.
In its letter, copied below, Clinton's Senior Portfolio Manager, Joseph DePerio, noted that the termination of the Chief Executive Officer's employment contract was "a good first step." He went on to note "the right next step is for the Company to be sold."
Mr. DePerio continued, "We simply cannot wait for the Board to hire yet another Chief Executive – the next one will be the fourth in five years – to embark on yet another change in strategy with the aim of turning around the Company. That path is simply too uncertain."
The Clinton Group expects that a sale of the Company could bring shareholders $5 to $8 per share, given recent transaction multiples and premiums in the retailing industry. Mr. DePerio noted that in several recent transactions, strategic and private equity buyers have "rescued shareholders from the sort of chronic under-performance shareholders have suffered at Wet Seal," and have provided the exiting public shareholders with a price that rewarded them for "some of the fruits of the anticipated turnaround."
Given the uncertainty associated with remaining independent, Mr. DePerio's letter noted that such a deal would likely garner for shareholders a price that "is meaningfully more than what the Company can do on its own."
About Clinton Group, Inc.
Clinton Group, Inc. is a diversified asset management firm with approximately $2.7 billion in assets under management. The firm has been investing in global markets since its inception in 1991 with expertise that spans a wide range of investment styles and asset classes. Clinton Group is a Registered Investment Advisor based in New York City.
Clinton Group, Inc.
9 West 57th Street, 26th Floor
New York, New York 10019
July 23, 2012
Board of Directors
The Wet Seal, Inc.
Foothill Ranch, CA 92610
RE: The Immediate Need To Explore Strategic Alternatives
I write on behalf of Clinton Group, Inc. ("Clinton"), the investment manager of several funds and accounts that collectively own 4.25% of the common stock of The Wet Seal, Inc. ("Wet Seal" or the "Company"). Founded in 1991, Clinton is an SEC Registered Investment Advisor with over $2.7 billion in assets under management.
The action you took over the weekend in terminating the employment contract of Ms. McGalla, the Company's (now former) Chief Executive Officer, is a good first step in creating value for shareholders. In our June letter, and in our discussions since then, we have noted that Ms. McGalla's record of underperformance was stark and unacceptable to us and other shareholders.
With the stock down more than 50% over the last five years (and down more than 80% over the last ten years), shareholder patience has grown thin. We simply cannot wait for the Board to hire yet another Chief Executive – the next one will be the fourth in five years – to embark on yet another change in strategy with the aim of turning around the Company. That path is simply too uncertain.
Instead, the right next step is for the Company to be sold. The Company should hire an investment bank and task it with immediately identifying interested buyers.
We suspect there are more than a few potential buyers that will be confident of their ability to use Wet Seal's substantial asset base (including its brands and store footprint) to create a steady and valuable earnings stream. We note recent transactions in the industry – Collective Brands, Charming Shoppes and Talbot's, among others – have rescued shareholders from the sort of chronic under-performance shareholders have suffered at Wet Seal as strategic buyers and private equity firms have demonstrated a willingness to share some of the fruits of the anticipated turnaround with exiting public shareholders. This Board should seek a similar transaction.
We believe the price that can be achieved in such a transaction is meaningfully more than what the Company can do on its own, even in the medium term. The Collective Brands, Charming Shoppes and Talbot's transactions took place at a 111%, 89% and 76% premium to their unaffected prices, respectively. A sale would likely provide Wet Seal shareholders with a significant premium also and, as importantly, a certain way to realize the full value of the Company. With the multiples in these and other recent transactions at the higher end of historical precedent, we believe a sale could result in a price to the Company's shareholders of $5 to $8 per share.
In the interim, the Board should take the steps we have been suggesting to return excess capital to shareholders. There is no reason for the Board to insist on holding $148 million in cash on its balance sheet. That cash is shareholder capital, and most of it should be returned to shareholders immediately.
I am available to discuss these matters at your convenience. I can be reached at 212-825-0400.
Joseph A. De Perio
Senior Portfolio Manager
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