While the continuing trade war sent the major indexes lower on Monday morning, fashion house Perry Ellis International Inc. (PERY, Financial) rose more than 6% in premarket trading after Randa Accessories offered to buy the company for $28 per share.
The all-cash bid, which equates to about $444 million, is a 3% premium to the Miami-based company’s closing price on Friday and is 50 cents higher than a competing offer from George Feldenkreis, Perry Ellis’ founder.
In June, the company agreed to be taken private for $437 million, or $27.50 per share, by Feldenkreis and his son Oscar, who is currently the company’s CEO. Together, they are Perry Ellis’ largest investors.
Feldenkreis’ offer will be financed through a combination of debt and equity.
In a letter to Perry Ellis’ board, Randa CEO Jeffrey Spiegel said that as the world’s largest men’s accessories company, offering popular brands like Levi’s, Timberland and Tommy Hilfiger, among others, it is an ideal acquirer because it has “significant cash on hand, no debt, key retail relationships around the world and more than 100 years of experience.”
“We believe that this all-cash proposal is compelling for your shareholders as it would deliver immediate, certain value to them that is superior to the value of the insider transaction,” he added.
Perry Ellis has yet to respond to the offer.
Performance
GuruFocus rated the apparel and accessories manufacturer’s financial strength 6 out of 10. While its interest coverage of 5.54 meets Benjamin Graham’s standard of 5, it still falls below the industry median of 36.09. Additionally, although the Altman Z-Score of 3.57 indicates the company is financially healthy, the Beneish M-Score of -2.19 suggests it may manipulate its financial statements.
The company’s profitability and growth was rated 5 out of 10. Even though its operating margin is expanding, which is usually a good sign, it still underperforms 59% of competitors. The company is strengthened by a Piotroski F-Score of 6, which implies stable business operations, and a business predictability rating of one out of five stars. According to GuruFocus, companies that receive this rating typically see an average gain of 1.1% per year.
While Perry Ellis has been able to keep its debt down over the past several years, decreasing from $228.36 million in January of 2011 to $93.7 million in January 2018, its revenue has also been declining.
Revenue has fallen from $980.6 million in January 2012 to $874.9 million in January 2018.
In regard to stock performance, Perry Ellis, which has a market cap of $461.63 million, was trading around $29.05 per share on Monday with a price-earnings ratio of 8.30, a price-book ratio of 1.19 and a price-sales ratio of 0.50.
According to the Peter Lynch chart below, the stock is undervalued since it is trading below its fair value.
GuruFocus estimates the stock has climbed 14% year to date.
Guru shareholders
Of the gurus invested in Perry Ellis, Jim Simons (Trades, Portfolio) has the largest position with 2.47% of outstanding shares. Chuck Royce (Trades, Portfolio) is also a shareholder.
Disclosure: No positions.
