UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2012 (July 30, 2012)
THE WET SEAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 0-18632 | 33-0415940 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
26972 Burbank
Foothill Ranch, CA 92610
(Address of principal executive offices; zip code)
Registrants telephone number, including area code:
(949) 699-3900
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
x | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. | Other Events. |
On July 30, 2012, The Wet Seal, Inc. (the Company) issued the press release that is filed as Exhibit 99.1 to this Current Report on Form 8-K and which is incorporated herein by reference. In addition, the Company is filing this Current Report on Form 8-K to disclose certain communications from the Clinton Group, Inc. which are filed as Exhibits 99.2 through 99.5 to this Current Report on Form 8-K and which are incorporated herein by reference.
The Company and certain of its directors and executive officers may be deemed to be participants in a solicitation of consent revocations from stockholders in connection with the potential consent solicitation by Clinton Group, Inc. The Company may file a preliminary consent revocation statement with the Securities and Exchange Commission (the SEC) in connection with such potential consent solicitation (the Consent Revocation Statement). Information regarding the names of the Companys directors and executive officers and their respective interests in the Company by security holdings or otherwise is set forth in the Companys Definitive Proxy Statement filed with the SEC on April 6, 2012. This document is available free of charge at the SECs website at www.sec.gov. Additional information regarding the interests of potential participants will be included in any Consent Revocation Statement and any other relevant documents filed with the SEC in connection with the possible consent solicitation.
If the Company files a definitive Consent Revocation Statement with the SEC, the Company promptly will mail the definitive Consent Revocation Statement and a form of consent revocation to each stockholder entitled to deliver a written consent in connection with the possible consent solicitation. WE URGE INVESTORS TO READ ANY CONSENT REVOCATION STATEMENT (INCLUDING ANY SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT THE COMPANY MAY FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able to obtain, free of charge, copies of any Consent Revocation Statement and any other documents filed by the Company with the SEC in connection with the possible consent solicitation at the SECs website at www.sec.gov.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
99.1 |
Press release, dated July 30, 2012, issued by the Company. | |
99.2 |
Clinton Group Correspondence, June 15, 2012 | |
99.3 |
Clinton Group Correspondence, June 28, 2012 | |
99.4 |
Clinton Group Correspondence, July 23, 2012 | |
99.5 |
Clinton Group Correspondence, July 30, 2012 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
The Wet Seal, Inc. | ||||||
Dated: July 31, 2012 | By: | /s/ Steven H. Benrubi | ||||
Name: | Steven H. Benrubi | |||||
Title: | Executive Vice President and Chief Financial Officer |
EXHIBIT INDEX
EXHIBIT NUMBER |
DESCRIPTION | |
99.1 | Press release, dated July 30, 2012, issued by the Company. | |
99.2 | Clinton Group Correspondence, June 15, 2012 | |
99.3 | Clinton Group Correspondence, June 28, 2012 | |
99.4 | Clinton Group Correspondence, July 23, 2012 | |
99.5 | Clinton Group Correspondence, July 30, 2012 |
Exhibit 99.1
July 30, 2012
The Wet Seal, Inc. Discloses Communications from Clinton Group, Inc.
FOOTHILL RANCH, Calif.(BUSINESS WIRE) The Board of Directors of The Wet Seal, Inc. (Nasdaq: WTSLA), a leading specialty retailer to young women, disclosed today certain communications it has received from Clinton Group, Inc. and issued the following statement regarding those communications.
During the last several weeks, The Wet Seal, Inc. has received letters and other communications from Clinton Group, Inc. in which Clinton Group requests that The Wet Seals Board of Directors takes various strategic actions purportedly for the benefit of all shareholders. We are disclosing these communications to our investors, and they are available in the investor section of the Wet Seal website (http://ir.wetsealinc.com/releases.cfm) along with this news release.
The Board of Directors is taking the necessary and prudent steps to stabilize the companys performance, and we are considering all options that will enhance shareholder value. We will not be pressured into making critical decisions about the companys business strategy in an impractical and imprudent timeframe.
Our commitment is to all of our shareholders, and we are in the process of developing a comprehensive strategic plan to address the current issues, strengthen the companys performance, and enhance shareholder value. We intend to communicate the details of that plan to our shareholders during our quarterly earnings call on August 21st.
About The Wet Seal, Inc.
Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items for young women. As of July 28, 2012, the Company operated a total of 550 stores in 47 states and Puerto Rico, including 468 Wet Seal stores and 82 Arden B stores. The Companys products can also be purchased online at www.wetseal.com or www.ardenb.com. For more Company information, visit www.wetsealinc.com.
Safe Harbor
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any statements that relate to the intent, belief, plans or expectations of the Company or its management. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Companys control. Accordingly, the Companys future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Companys filings with the Securities and Exchange Commission. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Additional Information and Where You Can Find It
The Company and certain of its directors and executive officers may be deemed to be participants in a solicitation of consent revocations from stockholders in connection with the potential consent solicitation by Clinton Group, Inc. The Company may file a preliminary consent revocation statement with the Securities and Exchange Commission (the SEC) in connection with such potential consent solicitation (the Consent Revocation Statement). Information regarding the names of the Companys directors and executive officers and their respective interests in the Company by security holdings or otherwise is set forth in the Companys Definitive Proxy Statement filed with the SEC on April 6, 2012. This document is available free of charge at the SECs website at www.sec.gov. Additional information regarding the interests of potential participants will be included in any Consent Revocation Statement and any other relevant documents filed with the SEC in connection with the possible consent solicitation.
If the Company files a definitive Consent Revocation Statement with the SEC, the Company promptly will mail the definitive Consent Revocation Statement and a form of consent revocation to each stockholder entitled to deliver a written consent in connection with the possible consent solicitation. WE URGE INVESTORS TO READ ANY CONSENT REVOCATION STATEMENT (INCLUDING ANY SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT THE COMPANY
MAY FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able to obtain, free of charge, copies of any Consent Revocation Statement and any other documents filed by the Company with the SEC in connection with the possible consent solicitation at the SECs website at www.sec.gov.
RLM FINSBURY
Steven Goldberg, 646-805-2027
steven.goldberg@rlmfinsbury.com
Source: The Wet Seal, Inc.
News Provided by Acquire Media
Exhibit 99.2
June 15, 2012
Board of Directors
The Wet Seal, Inc.
26972 Burbank
Foothill Ranch, CA 92610
RE: Wet Seal Performance and Board Accountability
Ladies and Gentlemen:
We write on behalf of Clinton Group, Inc. (Clinton), the investment manager of several funds and accounts, that collectively are a top 15 shareholder of The Wet Seal, Inc. (Wet Seal or the Company). We continue to buy shares of Wet Seal today. Founded in 1991, Clinton is an SEC Registered Investment Advisor with over $2.7 billion in assets under management.
We believe the market price of the Companys stock fails to reflect the embedded earnings power of the Company or the value of its brand. It is, of course, easy for investors to lose sight of these key hallmarks of value, given the abject underperformance and mismanagement of the Company over the last five years. In that timeframe, as you know, the stock has fallen by 50%.
While Wet Seals peers have unquestionably performed better, Wet Seal does not need to be a perennial disappointment to its owners. Indeed, we believe the Company can be turned around and perform well for investors, customers and employees.
We are not convinced the Company is on that path, however. Take note that since Ms. McGalla became the Chief Executive:
| The Company stock price has declined 21%; |
| Despite the stock trading near a multi-year low resulting in an enterprise value of just three times trailing EBITDA, many professional investors continue to actively bet against the Company, with more than 13 million shares sold short; |
| Comparable store sales have declined every month for the past nine months, including by as much as -13%; |
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.377.4181
Board of Directors
The Wet Seal, Inc.
June15, 2012
Page 2
| Cash has declined by $28 million; |
| Quality control and delivery issues were unfortunate and hurt performance in Q2 2011 leading to some missed sales opportunity. (Q2 2011 Earnings Call transcript, June 14, 2012); |
| There was significant sales weakness in September and October 2011 resulting from a lack of Halloween merchandising (which in the prior year had been a traffic driver) and 70s-inspired merchandise to which the customer did not respond well. (Q3 2011 Earnings Call transcript, November 17, 2011); |
| Sales were unsatisfactory in the 2011 holiday quarter due to suboptimal ... plans ... that proved to significantly challenge our business. (Q4 2011 Earnings Call transcript, March 22, 2012); |
| Performance in the Ql 2012 disappointed the management team and investors because of further merchandising mistakes. According to Ms. McGalla: We need more fashion and party looks. (Q4 2011 Earnings Call transcript, March 22, 2012); and |
| Internet sales have weakened significantly, posting a year-over-year decline of 17.1% in the latest quarter. |
Furthermore, the equity analyst community appears disheartened and pessimistic on the Companys near-term prospects, and only two of seven analysts currently rate the stock a Buy. Below are illustrations of recent equity analyst commentary:
| ... we need to see signs of consistent execution and top-line traction before we can revisit our rating. Piper Jaffray, 6/5/12 |
| ... the tops business continues to struggle; comp/margin trend is worrisome; we are awaiting a clear catalyst. B. Riley, 6/1/12 |
| the issues at Wet Seal stem more from company specific problems with product flow, fashion misses (especially in tops) and a generally too basic store in a period of novelty and color; frankly, all of the issues in 1Q are coming home to roost in 2Q... Brean Murray, 5/21/12 |
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.825.0311
Board of Directors
The Wet Seal, Inc.
June 15, 2012
Page 3
| Over the last three quarters, the growth story at Wet Seal has wilted among a number of key changes brought on by new management. Brean Murray, 5/21/12 |
Ms. McGalla herself appears to recognize the missteps and has admitted that the first quarter was a disappointing start to the year and we are not satisfied with current results for [the] second quarter. (Ql 2012 Earnings Call transcript, May 22, 2012.) (Late last year, sounding a similar note about the results at that time, Ms. McGalla commented that our overall performance did not meet our expectations. (Q3 2011 Earnings Call transcript, November 17, 2011)).
We do not mean to pick on Ms. McGalla or lay blame for this underperformance solely at her feet. After all, the longer-term performance has been no better, perhaps even worse, than the performance during Ms. McGallas tenure.
As the Company itself illustrates in its 10-K, the stock has dramatically underperformed the NASDAQ Retail Trade Stocks (Index) in almost every period over the last five years, with the Companys stock down 44% over the period from February 2, 2007 through January 27, 2012, compared with the Index, which was up 28%. (See the Companys Form 10-K at page 25.) Over the last three years, stockholders have lost more than 14% compared with an average total return of + 21% for the Companys competitors, as listed on page 11 of the Companys 10-K.
The stock performance has reflected fundamental long-term under-performance in the business. The Company has reported negative same-store sales in 75% of the last 60 months, a feat that is hard to achieve given the increasingly easy year-over-year comparisons. With three different Chief Executives and three different Chief Merchandising Officers at Wet Seal over the last five years, it is unsurprising perhaps that performance has been choppy at best.
Given these short- and long-term performance issues and the potential that we believe the Company has to be great again you can imagine our frustration that Ms. McGalla will not even meet or talk with us regarding the strategic direction of the Company. We have been told that due to meeting, travel and vacation commitments, Ms. McGalla is unavailable even for a conference call until at the earliest late July or August.
We believe time is of the essence. We cannot wait for Ms. McGalla to return from holiday to discuss these important issues any more than we or our fellow stockholders can wait any longer for her and her team to take effective action to stem the Companys chronic underperformance.
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.825.0311
Board of Directors
The Wet Seal, Inc.
June 15, 2012
Page 4
Accordingly, we respectfully request a meeting with the Board to discuss the Companys strategic direction, the fiduciary oversight provided by the Board and how the Company can best be operated to create value for stockholders. With the stock price now at levels not seen since 2004, we believe the Board which has been handsomely rewarded,1 year-after-year, but which owns very little stock needs to demonstrate its commitment to stockholders by being heavily engaged in the turnaround of the Company. After all, each of the independent Board members has been in place much longer than Ms. McGalla and bears responsibility for the Companys longer-term track record.
An early showing of the Boards commitment would be a willingness to sit with us and discuss these issues. We would therefore appreciate hearing from you by close of business on Tuesday, June 19 about scheduling time for us to meet.
You can reach me at (212) 825-0400.
Sincerely yours,
Joseph A. De Perio
Senior Portfolio Manager
1 | Mr. Kahn, the Companys Chairman, for example, made more in director compensation in 2011 than Bob Martin, the Lead Independent Director of Gap, Inc., a company with more than 23 times the revenue of Wet Seal. |
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.825.0311
Exhibit 99.3
IN FRASTRUCTURE | A G I L I T Y | E X P E R T I S E Globally Diversified Investment Institution Specializing In Alternative Investment Strategies
This presentation shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. However, we have not verified such information and we do not make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. No part of this report may be reproduced in any manner without the prior permission of Clinton Group, Inc. All return figures are net of fees. Total return and value will fluctuate and past performance is no guarantee of future results. The information set forth here should not be construed as an investment recommendation. This presentation should be read in conjunction with important disclosures included with this booklet. CCO Approved 6/1/11
© Clinton Group, Inc. All rights reserved 2012
The Wet Seal, Inc.
Our Initial Conclusions
June 2012
Executive Summary
We believe Wet Seal needs to optimize its capital structure and fix its operations. Shareholders have been patient long enough.
§As noted in our letter to the Board, the operating performance of the business has been dismal and the stock has underperformed
Both long- and short-term performance has been worse than peers, despite many efforts to remake the business
The stock now trades near a multi-year low and a low EBITDA multiple; yet, 13 million shares are sold short
§In our calls with management and the Board, it is unclear whether operating performance is turning around
Management expresses confidence, but the Board appears unconvinced
No objective or financial measures of improved performance, yet
§Everyone does agree that the capital structure is inefficient, with significant excess cash
Continuing to operate with an acknowledged, dramatically suboptimal capital structure is inexcusable
The un-needed cash dampens already low returns on invested capital from poor operating performance
The Board can create value for shareholders with a stroke of its pen by authorizing a self tender with excess cash
§Shareholders have, understandably, grown impatient; this Board needs to act or it will be held accountable
We believe there will be overwhelming shareholder support for replacing the Board in the event things do not improve
We are strongly considering all of our options
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY Page 1
Optimizing the Capital Structure
A well-executed stock tender offer will increase the Companys share price.
§Wet Seal has $75 - $100 million of excess cash
Cash is driving ROIC down to historically low levels
Cash as a percentage of market cap is higher than peers; ROIC is lower
Entire growth strategy can be executed with much less cash
ØOur analysis only suggests using existing cash - we have not even considered adding leverage to the balance sheet
§With an appropriately sized / structured self-tender, the stock would trade to $4.00 or higher
Buy 20+% of outstanding shares at a premium
With constant P/E multiple, the stock trades to ~$4.00
If store expansion strategy is executed well, the NPV of the stock rises to ~$6.00
We believe the stock will trade in the $4.00-$5.00 range
§Benefits
Take advantage of historically low stock price and high cash balance
Signal to the market that the Board has confidence that a turnaround is coming
Show commitment to the creation of shareholder value
Insistence on capital structure discipline is critical component of good corporate governance
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY Page 2
Comparable Companies: Net Cash a % of Market Capitalization
Wet Seal is overcapitalized on an absolute basis and compared to its peers, leading to an inferior Return on Invested Capital. Average: 22.6%
ROIC LTM4.0%16.7%NM12.1%9.9%19.2%9.1%30.0%4.4%41.6%32.9%28.2%19.3%18.5%15.7%13.1%12.0%
53.3%0.0%10.0%20.0%30.0%40.0%50.0%60.0%BEBECATOCTRNAEOHOTTARORUEANFWTSL.A
Source: Capital IQ and Company Filings. As of June 25, 2012.
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY Page 3
Excess Cash and Operating Performance Drive ROIC Down As Wet Seals ROIC(1) declined from 11.3% to 4.4%, the stock has declined from $6.48 per share to $3.00 per share.
11.3%14.7%6.9%6.5%6.9%4.4%0.0%5.0%10.0%15.0%20.0%FY07FY08FY09FY10FY11LTM4/28/2012
Source: Capital IQ and Company Filings. As of June 25, 2012.
Note: Fiscal year 2011 ends January 28, 2012.
(1) Normalized for one-time items. Assumes 40% tax rate.
§Large cash balances and weak operating performance have led to low and declining ROIC
§In turn, low ROIC has led to poor stock price performance, relative to peers and the market (since F07, stock down 54%)
§To levers to pull to help ROIC:
Improve operating performance to generate higher net income
Reduce invested capital by returning unused and excess capital to shareholders so they can deploy
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY Page 4
Page 5
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY Significant Excess Cash Even After Executing Growth Plan
Cash on hand and future free cash flow generation provide plenty of flexibility, even for dramatic future store count expansion.
Source: Company Filings and Clinton Estimates. As of June 25, 2012.
Note: Fiscal year 2011 ends January 28, 2012.
§There is more than sufficient liquidity to execute even a 100 store per year expansion (which seems aggressive) in the future
§Obviously, such a large expansion would not make sense unless the unit economics and cash flow improve first
FY12PFFY13EFY14EFY15EFY16ERevenue $613.4$663.1$763.1$901.9$1,048.4Growth-1.1%8.1%15.1%18.2%16.2%EBITDA$36.6$44.7$59.8$79.6$99.6Margin 6.0%6.7%7.8%8.8%9.5%Wet Seal Stores492532632732832Net Additions2040100100100Comps-3.5%3.0%3.0%3.0%3.0%Arden B Stores6666666666Comps-5.4%3.0%3.0%3.0%3.0%Cash Flow From Operations$19.6$46.0$59.9$61.0$73.0Capex for New Stores($7.5)($13.0)($32.5)($32.5)($32.5)Other Capex($21.8)($24.0)($24.0)($24.0)($24.0)Free Cash Flow($9.6)$9.0$3.4$4.5$16.5Total Cash$147.3$156.4$159.8$164.3$180.8
Page 6
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY
Right-Sized Tender Could Create Long-Term Value Repurchasing 20+% of the outstanding shares would be an effective use of the Companys capital, leading to 25% accretion.
§We believe there is at least $75 million in excess cash on the balance sheet
Would leave $73 million in pro forma cash
Plenty of cash to support working capital needs
Store count expansion could be funded, including with future cash flow
Acquisitions are a bad idea now, but could be executed with equity or debt in future
§A self-tender (even at $4) would be accretive to FY13 EPS by 25.8%, implying a $3.86 stock price
Source: Company Filings and Clinton Estimates. As of June 25, 2012. Buyback Assumptions:Total Buyback$75.0Current Market Value of Equity$277.7Price Per Share$4.00Current Shares Outstanding90.5Premium to Current Share Price30.3%% of Shares Repurchased20.7%Pro Forma Analysis:WTSL.AAdjustmentsPro FormaFiscal Year End 2/1/20142013E2013EIncome StatementEBIT$24.4$24.4Interest Expense (Income), net(0.0)0.10.0Other Non-Operating Expense0.00.0 Pre-Tax Income24.424.4Provision for Taxes9.89.8 Net Income14.714.6Number of Shares Outstanding90.5(18.8)71.7Fully Diluted EPS (In Dollars)$0.16$0.20Accretion25.8%Price / Implied Price$3.07$3.86P/E Multiple18.9x18.9xCapitalizationTotal Cash (4/28/12)$148.1($75.0)$73.1Total Debt (4/28/12)0.00.00.0
Page 7
Globally Diversified Investment Institution Specializing In Alternative Investment Strategies --- CONFIDENTIAL, INTERNAL USE ONLY
Good Capital Stewardship Plus Expansion Creates Value A meaningful share repurchase today would really pay off (stock up 90+%) if operating performance improves and store counts increase.
Source: Company Filings and Clinton Estimates. As of June 25, 2012.
Note: Fiscal year 2011 ends January 28, 2012. $75 Million Share Buyback - EV/EBITDA ValuationFY13EFY14EFY15EFY16EEBITDA$44.7$59.8$79.6$99.6Valuation Multiple7.0x7.0x7.0x7.0xEnterprise Value$313.1$418.4$557.4$697.2Net Cash$81.3$84.6$89.2$105.6Equity Value $394.4$503.0$646.5$802.8Shares Outstanding71.771.771.771.7Implied Stock Price$5.50$7.01$9.02$11.20Implied Stock Price Discounted to Today @ 15.0%$5.88Premium to Current Price91.7%$75 Million Share Buyback - P/E ValuationFY13EFY14EFY15EFY16EEPS$0.20$0.30$0.44$0.59Valuation Multiple18.9x18.9x18.9x18.9xStock Price$3.77$5.72$8.30$11.09Implied Stock Price Discounted to Today @ 15.0%$5.83Premium to Current Price89.9%
Exhibit 99.4
July 23, 2012
Board of Directors
The Wet Seal, Inc.
26972 Burbank
Foothill Ranch, CA 92610
RE: The Immediate Need To Explore Strategic Alternatives
Gentlemen:
I write on behalf of Clinton Group, Inc. (Clinton), the investment manager of several funds and accounts that collectively own 4.25% of the common stock of The Wet Seal, Inc. (Wet Seal or the Company). Founded in 1991, Clinton is an SEC Registered Investment Advisor with over $2.7 billion in assets under management.
The action you took over the weekend in terminating the employment contract of Ms. McGalla, the Companys (now former) Chief Executive Officer, is a good first step in creating value for shareholders. In our June letter, and in our discussions since then, we have noted that Ms. McGallas record of underperformance was stark and unacceptable to us and other shareholders.
With the stock down more than 50% over the last five years (and down more than 80% over the last ten years), shareholder patience has grown thin. We simply cannot wait for the Board to hire yet another Chief Executive the next one will be the fourth in five years to embark on yet another change in strategy with the aim of turning around the Company. That path is simply too uncertain.
Instead, the right next step is for the Company to be sold. The Company should hire an investment bank and task it with immediately identifying interested buyers.
We suspect there are more than a few potential buyers that will be confident of their ability to use Wet Seals substantial asset base (including its brands and store footprint) to create a steady and valuable earnings stream. We note recent transactions in the industry Collective Brands, Charming Shoppes and Talbots, among others have rescued shareholders from the sort of chronic under-performance shareholders have suffered at
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.825.0311
Board of Directors
The Wet Seal, Inc.
July 23, 2012
Page 2
Wet Seal as strategic buyers and private equity firms have demonstrated a willingness to share some of the fruits of the anticipated turnaround with exiting public shareholders. This Board should seek a similar transaction.
We believe the price that can be achieved in such a transaction is meaningfully more than what the Company can do on its own, even in the medium term. The Collective Brands, Charming Shoppes and Talbots transactions took place at a 111%, 89% and 76% premium to their unaffected prices, respectively. A sale would likely provide Wet Seal shareholders with a significant premium also and, as importantly, a certain way to realize the full value of the Company. With the multiples in these and other recent transactions at the higher end of historical precedent, we believe a sale could result in a price to the Companys shareholders of $5 to $8 per share.
In the interim, the Board should take the steps we have been suggesting to return excess capital to shareholders. There is no reason for the Board to insist on holding $148 million in cash on its balance sheet. That cash is shareholder capital, and most of it should be returned to shareholders immediately.
I am available to discuss these matters at your convenience. I can be reached at 212-825-0400.
Sincerely yours,
Joseph A. De Perio
Senior Portfolio Manager
9 WEST 57TH STREET, NEW YORK, NY 10019 TEL: 212.825.0400 FAX: 212.377.4181
Exhibit 99.5
July 30, 2012
Gentlemen
We appreciate the time you spent with us last week.
We sincerely believe, as we expressed, that the best path forward for the Company is to do a complete strategic review with the aid of an investment banker. We believe such a review should focus on the sale of the Company, but should consider all the various options and opportunities. Any other path risks being sub-optimal for shareholders and leaving significant value on the table. As we expressed, we do not believe the market believes this is the course you are on, given the language in your public statements.
We are attaching a draft press release that we are committed to sending out later today, barring a satisfactory answer from the Company. We believe the process of reviewing all alternatives to be so important that we are prepared to take our case to shareholders, if the Board intends to take a different path. We do not relish a public battle over this and encourage you to give us and other shareholders comfort that you are intending to conduct a thorough review with a reputable banker.
Our press release will go out early this afternoon unless we hear back from you on this. If you are on the right path, we (and other shareholders) want to know that. We would be willing to pause the release of our press release if you need a little time to communicate with your shareholder base. But we think time is of the essence and a public communication needs to happen in the next 24 hours from either you or us.
Regards, Joe
Joseph A. De Perio
Clinton Group, Inc.
9 West 57th Street, 26th Floor
New York, NY 10019
jad@clinton.com
Clinton Group Intends to Solicit Written Consent from Fellow Wet Seal Stockholders to Remove
Board Members and Replace Them with New Directors
NEW YORK, July [ ], 2012 /PRNewswire/ Clinton Group, Inc. (Clinton Group) today announced that it intends to solicit fellow stockholders of The Wet Seal, Inc. (Nasdaq: WTSLA) (Wet Seal or the Company) for their written consent to remove some or all of the members of the Board of Directors of the Company (the Board) and to replace them with independent professionals who will seek to maximize the value of the Company through improved operations, an optimized capital structure and the pursuit of a strategic transaction. Clinton Group, together with its affiliates, owns approximately 4.71% of the outstanding stock of the Company.
In spite of the poor performance of the Company under the leadership of this Board, we are aware of a private equity firm, and have reason to believe there are numerous others, that are interested in performing due diligence and potentially making an offer for Wet Seal, said Joseph DePerio, Senior Portfolio Manager for Clinton Group. In light of that opportunity, we cannot sit idly by while this Board hunts for yet another Chief Executive Officer and another turnaround strategy for the headless Company. As we have noted, we believe the best course forward is to find a buyer.
The Clinton Group noted that the stock is down almost 50% in the last five years and more than 80% in the last ten years. The stock was recently trading at a three-year low. The Directors have served for an average of more than seven years.
The Directors have paid themselves handsomely the Non-Executive Chairman was paid more by the Company last year than the Lead Independent Director of The Gap, a company with more than 20 times the revenue, made for his role there and yet the Directors collectively own less than 1.5% of the outstanding stock, Mr. DePerio noted. We believe that their interests are not adequately aligned with the interests of stockholders and that they have not earned the right to continue setting strategy or select management. The Board needs to pursue actively a strategic transaction. Until the Board does so, we will not rest.
Clinton noted that under Delaware law and the Companys Restated Certificate of Incorporation, a majority of the outstanding voting stock must sign the consent to remove members of the Board.
Clinton Group, Inc. and certain of its affiliates, officers and employees intend to make a preliminary filing with the United States Securities and Exchange Commission (SEC) of a consent solicitation statement to be used to solicit consents for the removal of some or all of the Directors from the Board and the election of new individuals to the Board.
This communication is not a solicitation of a written consent, which may be done only pursuant to a definitive written consent statement.
About Clinton Group, Inc.
Clinton Group, Inc. is a diversified asset management firm with approximately $2.7 billion in assets under management. The firm has been investing in global markets since its inception in 1991 with expertise that spans a wide range of investment styles and asset classes. Clinton Group is a Registered Investment Advisor based in New York City.
ALL STOCKHOLDERS OF THE WET SEAL, INC. ARE ADVISED TO READ THE DEFINITIVE CONSENT STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF WRITTEN CONSENTS BY CLINTON GROUP, INC., CLINTON SPOTLIGHT MASTER FUND, L.P.,
CLINTON MAGNOLIA MASTER FUND, LTD., CLINTON RETAIL OPPORTUNITY PARTNERSHIP, L.P. AND GEORGE HALL (COLLECTIVELY, The PARTICIPANTS) FROM THE STOCKHOLDERS OF THE WET SEAL, INC. IN CONNECTION WITH THE PARTICIPANTS INTENT TO TAKE CORPORATE ACTION BY WRITTEN CONSENT, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. WHEN COMPLETED, THE DEFINITIVE CONSENT STATEMENT AND FORM OF WRITTEN CONSENT WILL BE FURNISHED TO SOME OR ALL OF THE STOCKHOLDERS OF THE WET SEAL, INC. AND WILL, ALONG WITH OTHER RELEVANT DOCUMENTS, BE AVAILABLE AT NO CHARGE ON THE SECS WEB SITE ATHTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE CONSENT SOLICITATION WILL PROVIDE COPIES OF THE DEFINITIVE CONSENT STATEMENT WITHOUT CHARGE UPON REQUEST.
INFORMATION ABOUT THE PARTICIPANTS AND A DESCRIPTION OF THEIR DIRECT OR INDIRECT INTERESTS BY SECURITY HOLDINGS IS CONTAINED IN EXHIBIT 2 TO THE SCHEDULE 14A FILED BY THE PARTICIPANTS WITH THE SEC ON JULY 26, 2012. THESE DOCUMENTS CAN BE OBTAINED FREE OF CHARGE FROM THE SOURCES INDICATED ABOVE.
CONTACT: Connie Laux, Clinton Group, Inc., +1-212-825-0400
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