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Hardware chain cool to Sears' courtship

Date: Tuesday, November 27, 2007
Author: James P Miller, Chicago Tribune

Retail giant enters bid for Restoration; access to data denied

Sears Holdings Corp. disclosed Monday that it has made a tentative $269 million bid to acquire Restoration Hardware Inc. but complained that the upscale home-furnishings retailer continues to refuse it access to confidential financial data.

Sears' conditional proposal of $6.75 a share tops by only 5 cents a share a buyout offer the California company accepted from a private-equity group this month and represents a much more tepid offer than many investors had been anticipating.

Sears shares dropped $4.81, or 4.3 percent, to $107.77. Restoration stock ended the day at $7.07, up 1 cent. Both trade on the Nasdaq stock market.

Still, the Hoffman Estates-based retail giant, which is controlled by hedge-fund investor Edward Lampert, signaled that Lampert isn't giving up on his months-long effort to acquire Restoration. Among other things, Sears said pointedly in its filing that the target company seems interested only in the offer Restoration has accepted from a group that includes Restoration's chief executive.

Once a highflying Wall Street favorite, with a stock price that briefly traded in the mid-$30s, Restoration has been out of favor with investors for the past several years, and the collapse of the U.S. residential construction market only has added to the Corte Madera, Calif.-based company's difficulties.

In early November Restoration definitively agreed to be taken private through a $6.70-a-share buyout that values the struggling company at $267 million. The buyout group, led by the private-equity firm of Catterton Partners, includes Restoration Chairman and CEO Gary Friedman.

Less than two weeks later, Sears disclosed in a regulatory filing that it had amassed a 13.7 percent stake in Restoration and was considering making a buyout bid for the company. In that Nov. 19 filing, Sears also disclosed that Lampert had made an initial expression of interest to Restoration in June. And after learning in October that Restoration was in talks regarding a possible private-equity buyout, the filing said, Sears made an unsuccessful $4-a-share buyout proposal.

When Sears made that filing, Restoration shares surged above the buyout price to top $7, as investors laid bets that Sears or another suitor would make a higher offer.

Under Restoration's accord with the Catterton group, the retailer is to hold what's known as a "go shop" period, in which it will entertain any competing legitimate bids until Dec. 13.

But Sears' filing indicates that Lampert's company hasn't gained much traction in its effort to oust the Catterton group or to get Restoration to open its books to Sears.

The centerpiece of the filing is a letter that Sears Executive Vice President William Crowley sent Friday to Restoration's board. In it, Crowley said Sears is "disappointed" that its "numerous" requests to receive confidential data from Restoration haven't been granted.

Noting that Restoration wanted Sears to submit a proposal superior to the one in hand before it lets Sears conduct an in-depth due diligence review of Restoration's books, Crowley said Sears is prepared to offer $6.75 a share, assuming the review proves satisfactory.

But on Sunday, Sears' Monday filing said, Restoration said it was unwilling to enter into a confidentiality agreement based on Sears' offer. Restoration has not made any filings about the matter. Restoration declined to comment Monday, according to The Associated Press, as did Sears and Catterton.

Crowley went on to adopt a tougher tone in the letter, by telling Restoration's board that Sears, now the California company's largest stockholder, is "concerned" by some aspects of the management-led buyout Restoration has accepted.

The letter doesn't specifically point out that U.S. securities law requires directors to seek the best deal available for shareholders. But Crowley gets the point across, as he contends that since Restoration signed its confidentiality pact with the private-equity group in July, it has apparently "been focused exclusively on the insider deal since that time, rather than exploring [Sears'] known interest."

Sears, he said, believes that "providing us with information and the opportunity to offer all stockholders more consideration than they would receive pursuant to the current merger agreement" would be in stockholders' best interest.