Zale Corp. (ZLC) Holder Opposes Merger with Signet (SIG)

May 9, 2014 2:38 PM EDT
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TIG Advisors, LLC, which holds about 9.5 percent of Zale Corp. (NYSE: ZLC), is opposing Zale's merger with Signet Jewelers (NYSE: SIG). From a 13D filing made today:

The Reporting Persons purchased the Shares based on the Reporting Persons’ belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.

The Issuer has announced its entry into an Agreement and Plan of Merger, dated February 19, 2014, with Signet Jewelers Limited, a Bermuda corporation (“Signet”), and Carat Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Signet the (“Merger Agreement”). Pursuant to the Merger Agreement, Signet will acquire all of the issued and outstanding stock of the Issuer for $21.00 per share in cash consideration. After careful examination of the relevant public materials, the Reporting Persons have determined that they do not believe the Merger as currently contemplated is in the best interests of the Issuer’s shareholders.

Accordingly, on May 9, 2014, the Reporting Persons published a detailed investor presentation supporting their position that the Merger provides inadequate consideration to the Issuer’s shareholders that was derived after a flawed evaluation process. The Reporting Persons demonstrated in the presentation that the Issuer and its financial advisors relied on stale financial information that fails to capture financial improvements since July 31, 2013 (the date of the financials used by the Issuer and its advisors) as well as current management projections that envision continued significant improvement. The Reporting Persons noted their belief that the Issuer stock was depressed because of the announcement by Golden Gate, a 23% shareholder of the Issuer, of its intention to divest of its interest in the Issuer and information asymmetry where management’s projections were not fully assimilated by the market. The Reporting Persons also highlighted their view that the extraordinary synergies available from the business combination of the two dominant national jewelry companies should have been equitably shared and should have resulted in a higher merger consideration or a stock component in the consideration that would allow the Issuer’s shareholders to participate in the value created by unlocking deal synergies. The Reporting Persons noted that the Issuer had failed to address conflicts of interest with its financial advisor and had allowed the director representative of Golden Gate to participate in the deliberations on the Merger despite apparent conflict and even sit on the Negotiation Committee charged with evaluating the transaction. The Reporting Persons concluded by explaining that by negotiating a late “end date” of February 19, 2015 by which the Merger must be completed, the Board effectively granted a valuable put option to the Issuer’s shareholders allowing them the benefit of seeing the Issuer’s financial results and projections over the next three quarters before they must make a decision to support or reject the Merger. Based on the Reporting Persons’ reading of the Merger Agreement, if there is no quorum to do business at the special meeting scheduled to be held on May 29, 2014 (the “Special Meeting”), then, without jeopardy to the Merger, the Board may adjourn the Special Meeting to provide the Issuer’s shareholders extended time to evaluate and consider the Merger prior to making an informed decision on whether it should be approved on its current terms. A full copy of the investor presentation is attached as Exhibit 99.1 and is incorporated herein by reference.

Also on May 9, 2014, the Reporting Persons filed a preliminary proxy statement with the SEC in connection with their solicitation of proxies in opposition to the Merger.

Joint filing and solicitation agreement is below:

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