Shamrock Holdings, citing last month's stock market crash, said Thursday that it will lower its hostile takeover bid for Wherehouse Entertainment by about 15% and threatened to lower the bid price even more.
Shamrock, a Burbank investment company owned by the family of Roy E. Disney, nephew of the late Walt Disney, offered $92 million--or $12 a share--for the stock in the Torrance retailer it doesn't already own. If Wherehouse doesn't agree to the proposal within a month, Shamrock said it will drop its offer to $10 a share.
Wherehouse, which sells records, cassettes, compact discs and computer software and rents videotapes, operates about 200 stores, mostly in California, and had sales of $225.5 million in the year ended Jan. 31. Shamrock owns 867,000 Wherehouse shares, or 10.2% of the 8.5 million shares outstanding.
Wherehouse executives did not return calls seeking comment. Its directors have rejected Shamrock's original $14.25-a-share bid that was made Oct. 13. Shamrock's bid came a week before the market slide that culminated in the Dow's 508-point dive on Oct. 19.
After the market tumble, Wherehouse's stock slid to $8.50 on Wednesday from $14 a share. The stock jumped $1.875 Thursday to $10.375 in trading on the American Stock Exchange after the announcement.
Shamrock said its cash offer will be made early next week through a new subsidiary, but only if an agreement is reached with Wherehouse directors and several other conditions are met.
Parachutes at Issue
Key among those conditions is the defusing of a Wherehouse anti-takeover device that allows shareholders in a hostile battle to buy one share of stock for each share they own at half the price offered by the suitor. Shamrock also want removed a so-called golden parachute clause that allows executives who resign in a hostile takeover to collect up to 400% of their annual salaries.
The firm said it filed suit in Los Angeles Superior Court late Thursday to require Wherehouse to void the anti-takeover and golden parachute measures.
Should it fail to reach an agreement with Wherehouse in about one month, Shamrock said, it will seek to increase its stake to more than two-thirds by offering the lower, $10-a-share price.
Shamrock President Stanley P. Gold said the lower price takes into account about $50 million in convertible bonds that holders have the right to redeem at a premium in a hostile takeover.
Shamrock has a considerable war chest to finance a bid. The company said it has a commitment from Wells Fargo Bank to provide up to $110 million.
One Wall Street arbitrager, who asked not to be identified, said he believes that Wherehouse is an unattractive buy because of its lackluster earnings this year and because of the highly competitive video rental business.
In the six months ended July 31, Wherehouse's earnings fell 74% to $909,000, although sales increased 31% to $125.1 million.
But Keith E. Benjamin, an analyst for Silberberg, Rosenthal & Co. in New York, said the company's earnings have been depressed because it is been spending heavily to upgrade stores, open news ones and link its stores through a sophisticated computer system.