Tuesday I wrote about Sherwood Investments' 13-D filing (the first in the firm's history) indicating a 5.48% stake in Trans World Entertainment (NASDAQ: TWMC), the owner of mall-based music and entertainment stores including f.y.e., Suncoast, and Sam Goody.Obviously this lends a good deal of credibility to Sherwood's offer, but there are still a few things that investors need to wonder about.
The first, and most important question, is how many contingencies does the offer contain. If the offer is loaded with hedges and outs for Sherwood, it's a lot easier to dismiss it as blustering. If Sherwood's offer is contingent on the ability to secure financing and the Kansas City Royals winning the World Series, it's pretty easy to dismiss. How many contingencies does the offer have? It's hard to say because in the the 13-D filing, Sherwood actually contradicts itself:
On November 29, 2007, Sherwood sent a letter to the Issuer and the Special Committee, in which it made a preliminary proposal to acquire all of the Issuer's Common Stock not owned by Sherwood for $7.00 per share, subject to a due diligence review and complete and fair evaluation of the Issuer's business. A copy of that letter is attached hereto as Exhibit C.
That's all perfectly normal. But when you actually go and read exhibit C, there's absolutely nothing about the offering being "subject to a due diligence review and complete and fair evaluation of the Issuer's business". Instead we get this:
Sherwood Investments Overseas Limited is pleased to offer $7 per share for all of the shares of Trans World Entertainment Corporation not currently owned by Sherwood, subject to the availability of satisfactory financing and the execution of a mutually acceptable purchase agreement. This offer may be increased as a result of the information obtained from the due diligence process.
So is the offer contingent upon a due diligence review, or is it merely possible that Trans World will increase the offer based on information they find? It's all very confusing but the 13-D filing seems to back down from the offer quite a bit -- adding a contingency that doesn't appear to have been mentioned in the past.
And another question: If Trans World's $7 per share offer was contingent on a due diligence review, it essentially has no meaning. The company can back out based on anything it might find after it signs the confidentiality agreement. So why bother with a press release making an offer? Why not just go to special committee, sign a confidentiality agreement, and then make an offer based on due diligence?
It just doesn't make any sense -- if Sherwood is serious about its offer, why is it spending so much time on press releases, rather than simply interacting with the special committee?
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