Friday, January 15, 2010

Bare Escentuals sells to Shesiedo, the lawsuits fly...(BARE)

Last night it was announced that Japan's largest cosmetic company, Shesiedo, will buy San Francisco-based Bare Escentuals for about $1.7billion, or $18 per share, representing a 42% premium to yesterday's price.

Bare Escentuals CEO Leslie Blodgett will take 40% of her share in continuing interest (equity participation) in

"Bare Escentuals’ Board of Directors will recommend that Bare Escentuals’ stockholders tender their shares to Shiseido pursuant to the offer. Expressing her commitment to the combination, Leslie Blodgett has agreed to exchange 40% of her existing common stock ownership in Bare Escentuals1 for a continuing interest in Bare Escentuals following completion of the tender offer."

The takeout price represents a PE of 20times 2009 earnings and 19times 2010's. Pretty damn good price for BARE Escentuals shareholders if you ask me....But the ambulance chasers are on the scene as usual!

A few of the legal arguments, as these firms shoot first and come up with a rationale later....

--Tripp Levy PLLC -- "The investigation concerns whether the consideration to be paid to BARE shareholders is grossly unfair, inadequate, and substantially below the fair or inherent value of BARE. The investigation further concerns whether members of BARE may have breached their fiduciary duties by not acting in BARE shareholders' best interests in connection with the sale process of BARE."

--Wolf Haldenstein Adler Freeman & Herz LLP -- "Bare’s CEO will exchange a portion of her holdings for a continued interest in the business after the deal. Pursuant to this proposed transaction, management may be benefiting unlawfully at the expense of Bare’s public shareholders."

-- Levi & Korsinsky LLP -- "The investigation concerns whether the Bare Escentuals Board of Directors breached their fiduciary duties to Bare Escentuals stockholders by failing to adequately shop the Company before entering into this transaction and whether Shiseido is underpaying for Bare Escentuals shares, thus unlawfully harming Bare Escentuals stockholders."

-- Finkelstein Thompson LLP -- "The investigation is focused on the potential unfairness of the price to Bare Escentuals shareholders and the process by which the Company's Board of Directors considered and approved the transaction.� In particular, the investigation is focused on determining whether the Board satisfied its duty to maximize shareholder value, and whether Company insiders are receiving benefits from the transaction that would create a conflict of interests."

Instead of suing the company for breach of fiduciary duty, investors needed only to look at the company's history. They engaged in multiple "recapitalizations" in the years and months leading up to their IPO. Simply put, they took on debt, paid current shareholders a massive immediate windfall, then shopped the remaining carcass to the public.

That said, this carcass was still very profitable. But a management that sucks out such a large amount of capital before puking shares to the rest of the public might not be best to invest money with, as can be seen from the post-IPO performance:

Best of luck to all involved.

Copyright 2010 AlphaNinja

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