TIG Advisors a stockholder of Zale Corporation (NYSE: ZLC) (“Zale” or the “Company”), owning approximately 9.5% of its outstanding shares of common stock, today announced that Glass, Lewis & Co., LLC (“Glass Lewis”) has recommended that Zale stockholders vote AGAINST the proposed merger with Signet Jewelers Limited (NYSE: SIG) (“Signet”) for $21 per share in cash.
Glass Lewis concluded in its report that:
“In our view, shareholders would be better served rejecting the transaction in favor of a more robust strategic review and -- in the absence of a compelling alternative -- the continued pursuit of Zale's stand-alone operating plan.”
“In direct terms, the buyer got a deal.”
“...we maintain the flaws in the board's pre-execution review process -- including a myopic exploration of alternative bidders, the appointment of a Golden Gate Capital representative to the negotiation committee and relying on the fairness letter of a conflicted financial adviser – are...significant...”
An Inequitable Distribution of Value
In its report, Glass Lewis strongly agreed with TIG Advisors' contention that the Signet offer to Zale shareholders undervalues Zale, noting that:
“... in our opinion, the board asks for shareholders to liquidate their interests while the Company is mid-recovery, and potentially undervalued, in exchange for an all-cash value that may not fully reflect Zale's stand-alone prospects and management's historical ability to achieve near-target performance relative to internal projections.”
Glass Lewis found the Zale board's arguments that the post-announcement increase in Signet's share price was due to factors other than the merger to be “...rather unconvincing.”
A Broken Deal Process
In its report, Glass Lewis offered extensive criticism for the process pursued by the Zale board prior to announcing the transaction with Signet finding that:
“...the board made no serious effort to consider or engage even a targeted group of potential alternative buyers...”
Glass Lewis documented five separate occasions where the Zale board declined to pursue a broader effort to solicit alternative bidders. Noting that on each occasion the board “...on facile bases...all but ushered forward a closed engagement with a single counterparty.”
Conflicts Abound
Glass Lewis endorsed TIG Advisors' view that as an investor seeking an exit, Golden Gate Capital may not have been aligned with other shareholders, and that its participation on the negotiation committee represented a potential conflict.
Glass Lewis also shared TIG Advisors' view that BofA's role as financial advisor to Zale was a significant flaw in the merger process saying: