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THE WALL STREET
JOURNAL. |
Business
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Business
Three Funds Plan to Seek Appraisal of Zale
Shares Over Signet Deal
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By
Liz Hoffman
May 30, 2014 6:01
p.m. ET
Some
hedge funds are trying to squeeze money out of stones.
Three
funds that voted against or didn't vote in Zale Corp.'s sale to rival
ring-retailer
Signet Jewelers Ltd. are planning to seek an independent valuation
of their shares from a judge, according to people familiar with the
matter, taking advantage of an increasingly popular legal process
known as appraisal. Together, the funds own about 26% of Zale's
shares, according to the people, a stake worth $235 million at the
buyout price.
The
merger, which will combine two of the largest U.S. jewelry retailers,
narrowly passed a shareholder vote on Thursday. About 53% of Zale's
outstanding shares voted in favor.
Two of
the funds had earlier gone public with their opposition to the sale.
TIG Advisors LLC, which owns 9.5%,
had been urging shareholders to reject it. Last week, funds
controlled by investor Mario Gabelli came out against the deal and
said they might seek appraisal for their 7.45% stake. Gabelli may not
seek appraisal on all of its shares, one person said.
The third
investor is Merion Capital LP, a Pennsylvania-based fund that
specializes in appraisal rights. Merion accumulated a 9% stake in Zale
in the weeks leading up to the vote, according to a person familiar
with the investment.
Merion is
one of the largest funds practicing "appraisal arbitrage,"
an increasingly popular strategy that involves buying up shares of
companies on the brink of a buyout, voting against the deal, and then
seeking more in court. Including Zale, Merion now has around $770
million tied up in five pending appraisal actions, according to court
filings and based on the buyout prices of each. Risks of appraisal
include a judge valuing shares below the deal price, and tying up
money in the deals, although investors get interest even if they lose.
TIG has said it thinks Zale shares could
be worth $28.60 apiece, versus a merger price of $21. It argued that
the merger didn't share enough upside with Zale shareholders.
To seek
appraisal, a shareholder must vote no or abstain on the deal. It has
been pursued in the recent buyouts of Dole Foods Co., BMC Software
Inc. and Duff & Phelps Corp.
Write to
Liz Hoffman at
liz.hoffman@wsj.com
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