Offers Compelling Value Proposition to Cost Plus Shareholders
FORT WORTH, Texas--(BUSINESS WIRE)--June 9, 2008--Pier 1 Imports,
Inc. (NYSE:PIR) today announced that it has sent a letter to the Cost
Plus, Inc. (NASDAQ: CPWM) Board of Directors proposing to acquire all
the outstanding shares of Cost Plus common stock in a strategic
stock-for-stock transaction. The Company believes a transaction could
be completed in the third calendar quarter of 2008.
Under the terms of the proposal, Pier 1 Imports, Inc. would issue
0.6000 shares of its common stock for each share of Cost Plus common
stock. Based on the closing prices of Pier 1 Imports and Cost Plus on
June 6, 2008, the proposed exchange ratio implies a value of $4.00 for
each share of Cost Plus common stock. The offer represents a premium
of approximately 31% over the Cost Plus closing price on June 6, 2008,
and a premium of approximately 34% over the average closing price of
Cost Plus shares for the last 30 trading days.
"We believe that the combination of Pier 1 Imports and Cost Plus
is extremely compelling and would create significant value for the
stakeholders of both companies," said Alex W. Smith, President and
Chief Executive Officer. "Given our similar customer bases and broadly
similar business models, but distinct market positions, we believe
Cost Plus is an excellent fit with Pier 1 Imports. We are confident
that combining our two companies would create a stronger and more
competitive company that is better positioned for future growth.
Furthermore, we believe the combination will result in improvements in
Cost Plus's operating margins and significant synergies, anticipated
to come from organizational efficiencies in the supply chain
management, shared services, store operations and other general
administrative costs. Cost Plus shareholders will enjoy significant
benefits from the combination, including improved operational
liquidity of the combined company as well as a more active trading
market for their shares.
"Given our track record of execution and our sound financial
condition, we are confident that our management team can deliver
long-term growth and profitability to shareholders of the combined
company. We are committed to working together with the Cost Plus Board
of Directors to promptly execute a definitive agreement and look
forward to capitalizing on the exciting prospects this combination
will create," Mr. Smith continued.
In light of the compelling nature of Pier 1 Imports's proposal and
the importance of allowing the companies' respective shareholders to
capitalize on the benefits of the proposed transaction sooner rather
than later, the Company released the following letter publicly so that
both companies' stakeholders will have the opportunity to fully assess
this unique opportunity:
June 6, 2008
Board of Directors
Cost Plus, Inc.
200 4th St.,
Oakland, California 94607
Lady and Gentlemen:
We at Pier 1 Imports, Inc. ("Pier 1") have believed for some time
that the businesses of Cost Plus, Inc. ("Cost Plus") and Pier 1 are
highly complementary and that a merger of our companies would provide
significant synergies and deliver enhanced value to our respective
shareholders. A combination would also benefit our customers,
employees and other key constituencies. Our companies have similar
customer bases and broadly similar business models, but distinct
market positions. The combination of Pier 1 and Cost Plus would create
a stronger and more competitive company that is better positioned for
future growth. Accordingly, we have been authorized by the Board of
Directors of Pier 1 to formally propose a transaction for this
purpose.
After reviewing the publicly available information on Cost Plus,
we are prepared to acquire all of the outstanding shares of common
stock of Cost Plus in a stock-for-stock transaction in which Pier 1
would issue 0.6000 shares of its common stock for each share of Cost
Plus common stock. This represents an offer price of $4.00 per share
(based on the closing price of Pier 1's common stock on June 6, 2008).
The reasons in favor of combining our companies are compelling for
Cost Plus's shareholders. For example:
-- While Pier 1 has made significant progress since its current
management team was augmented in 2007, Cost Plus results have
continued to deteriorate through multiple management changes
to date. As a result, Cost Plus's stock price has declined
precipitously as your company has struggled unsuccessfully to
restructure its business, while Pier 1's stock has retained
its value in the face of the same challenging environment. In
fact, over the last six months, Pier 1's stock price has
appreciated 64.7%, while Cost Plus's stock price has declined
13.1%.
-- Absent a transaction, Cost Plus is likely to face increasing
liquidity problems. Pier 1's financial condition is sound and
we have a committed $450 million asset-based lending facility
that should be sufficient to provide future operational
liquidity for both companies. We are confident that Cost Plus
shareholders would prefer a combined company focused on
long-term growth and profitability rather than a stand-alone
Cost Plus preoccupied with simply reaching positive cash flow.
-- Over the last year, Pier 1 management has achieved
approximately $160 million in cost savings as a result of its
efforts to reduce marketing expenses, payroll and other
general administrative costs. Based on publicly available
information, and Pier 1's expectation of the combined benefits
of a Pier 1-Cost Plus transaction, Pier 1 believes that it can
achieve cost savings in the range of 5% of sales of Cost Plus
(approximately $50 million), which is consistent with
comparable retail transactions. Estimates of these potential
cost synergies are anticipated to come from organizational
efficiencies in the supply chain management, shared services,
store operations and other general administrative costs. In
addition, Pier 1's management is confident that the
combination would result in improvements in Cost Plus's
operating margins, providing an opportunity for Cost Plus
shareholders not only to participate in the turnaround of Cost
Plus's business, but also to reap the benefits of a larger,
more efficient company that has the potential to once again
achieve our companies' historically high operating margins.
-- Pier 1's management team is well equipped to implement a
speedy turnaround at Cost Plus. Pier 1's senior management has
experience operating multi-divisional companies, both at
Pier 1 and externally, and can leverage our current systems to
effect a smooth and efficient integration of our businesses.
-- A transaction with Pier 1 would provide Cost Plus shareholders
the significant benefits of a more active trading market.
Pier 1's stock is listed on the New York Stock Exchange and
enjoys significant trading volume relative to Cost Plus's
stock. For example, during the four weeks ended June 6, 2008,
Pier 1's average weekly trading volume was approximately 7.2
million shares, or about 8.1% of its outstanding shares, which
is significantly greater than Cost Plus's average trading
volume during the same period. We believe that Cost Plus's low
trading volume effectively precludes your largest shareholders
from actively trading in Cost Plus's shares.
Our proposal is subject to limited confirmatory due diligence,
which we are prepared to commence immediately, the negotiation of a
definitive acquisition agreement and, of course, the receipt of all
necessary shareholder and regulatory approvals. In addition, because
the consideration would consist of our common stock, we would provide
you with the opportunity to conduct appropriate limited due diligence
with respect to Pier 1.
We have already dedicated considerable time and resources to an
analysis of a potential transaction. We have engaged JPMorgan as our
financial advisor for this purpose, as well as outside legal counsel.
Our team is prepared to devote the additional significant resources
necessary to ensure a smooth and expedited process.
We are prepared to deliver a draft merger agreement to you and
begin discussions immediately. With your full cooperation, we are
confident that we would be able to complete due diligence and conclude
a definitive agreement expeditiously, and immediately thereafter
commence the necessary proceedings for the approval of your
shareholders in accordance with California law (approval of our
shareholders will not be required). Our antitrust counsel has advised
us that the antitrust review process should be straightforward, and we
are confident that the transaction will receive all necessary
regulatory approvals in a timely manner. Accordingly, we believe a
transaction could realistically be completed in the third calendar
quarter of this year.
Our preference is to work together with you and your advisors to
negotiate and announce a definitive agreement between our companies in
the near term. We note that Cost Plus currently has in place a
shareholder rights plan (or poison pill) that is scheduled to expire
on June 30, 2008. As a shareholder of Cost Plus, please consider this
our formal request that you terminate that shareholder rights plan
immediately and that you refrain from renewing or extending it or
adopting any other rights plan or poison pill. In addition to your
fiduciary duty to shareholders, who should have the right to decide
for themselves whether a transaction is in their best interests as
owners of Cost Plus, we believe that the Cost Plus shareholder rights
plan is a discriminatory rights plan that violates Section 203 of the
California Corporations Code.
Our proposal to acquire Cost Plus represents a unique and
compelling opportunity to create a stronger combined company that will
be well positioned to succeed in a very competitive industry. We
believe that your shareholders will overwhelmingly agree and
enthusiastically support our proposal. We note that our companies have
several significant shareholders in common. In fact, we estimate that
our common shareholders own approximately 62% of Cost Plus's
outstanding shares.
We request a meeting with your management and/or chairman prior to
the open of business on June 9, 2008 to discuss our proposal. We have
separately provided you with contact information for this weekend. Our
senior management is available to meet with you and answer any
questions concerning our proposal. In light of the importance of this
proposal to your shareholders and ours, as well as the potential for
selective disclosures, if you elect not to meet with us by that date
or we cannot agree on a course of action, we intend to publicly
disclose this letter.
Best Regards,
/s/ Alex Smith /s/ Tom Thomas
Alexander W. Smith Tom M. Thomas
President and Chief Executive Officer Chairman of the Board
The Company's proposal is subject to limited confirmatory due
diligence, which it is prepared to commence immediately, the
negotiation of a definitive acquisition agreement and the receipt of
all necessary shareholder and regulatory approvals. The Company has
also formally requested that Cost Plus immediately terminate its
shareholder rights plan (or poison pill), which is scheduled to expire
on June 30, 2008, and refrain from renewing or extending the plan or
adopting any other rights plan or poison pill.
JPMorgan is acting as financial advisor to Pier 1 Imports, and
Gibson, Dunn & Crutcher LLP and Bracewell & Giuliani LLP are acting as
legal counsel.
About Pier 1 Imports, Inc.
Pier 1 Imports is the original global importer and is North
America's largest specialty retailer of imported decorative home
furnishings and gifts. Information about the Company is available on
www.pier1.com.
Disclosure Regarding Forward-Looking Statements
Certain statements contained in this document, including
information included or incorporated by reference in this document,
regard matters that are not historical facts and are "forward-looking
statements" within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, as amended, and the
rules promulgated pursuant to the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended. Generally, the
words "will," "may," "should," "continue," "believes," "expects,"
"intends," "anticipates" or similar expressions identify
forward-looking statements. Because forward-looking statements are
subject to risks and uncertainties, actual results may differ
materially from those expressed in or implied by such forward-looking
statements. Factors that could cause actual results to differ
materially from those contemplated by the forward-looking statements
include, among others, the following factors: cost savings expected to
result from the proposed acquisition may not be fully realized or
realized within the expected time frame; operating results following
the proposed acquisition may be lower than expected; competitive
pressure among specialty home furnishings retailers may increase
significantly; costs or difficulties related to the integration of the
businesses of Pier 1 Imports and Cost Plus may be greater than
expected; changes in the market price of Pier 1 Imports, Inc.'s common
stock between the date hereof and the date that the value of the
Company's common stock is determined for purchase accounting purposes
could result in the recognition of higher levels of goodwill and other
intangible assets; general economic conditions, whether nationally or
in the market areas in which Pier 1 Imports and Cost Plus conduct
business, may be less favorable than expected; and adverse changes may
occur in the securities markets. The businesses of Pier 1 Imports and
Cost Plus are also subject to a number of other risks that are set
forth in the "Risk Factors," "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" sections of, and elsewhere in, the SEC filings of Pier 1
Imports, Inc. and Cost Plus, Inc. copies of which may be obtained by
contacting the investor relations departments of each company or from
their respective websites: www.pier1.com and www.worldmarket.com. Many
of the factors that will determine the outcome of the subject matter
of this document are beyond the Company's and Cost Plus's ability to
control or predict. The Company undertakes no obligation to release
publicly the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
This communication is neither an offer to purchase nor a
solicitation of an offer to sell any securities, nor a solicitation of
any vote or approval. If a transaction is agreed upon or an offer to
exchange shares of Pier 1 Imports, Inc.'s common stock for shares of
Cost Plus, Inc.'s common stock is commenced, the Company will file any
forms, notices and other relevant documents concerning such proposed
transaction with the SEC as required under state and federal law. YOU
ARE URGED TO READ ANY SUCH FORMS, NOTICES AND OTHER DOCUMENTS IF AND
WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. You will be able to obtain any such forms, notices or
other documents (if and when they become available) and any other
documents filed with the SEC free of charge at the SEC's website,
www.sec.gov. In addition, you may obtain such forms, notices and other
documents (if and when they become available) free of charge by
requesting them in writing from Pier 1 Imports, Inc., 100 Pier 1
Place, Fort Worth, TX 76102 , Attn: Investor Relations, tel:
888-807-4371.
CONTACT:
Pier 1 Imports, Inc.
Cary Turner, 817-252-8400
or
For Media:
Joele Frank, Wilkinson Brimmer Katcher
Eric Brielmann / Jamie Moser
212-355-4449
SOURCE:
Pier 1 Imports, Inc.
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