Hanover Direct, Inc. (fka HNVD)

[futurecyborg]

Hanover Direct accused of aiding rival in takeover offer


Wednesday, March 8, 2006

By JOAN VERDON
STAFF WRITER



Direct-mail retailer Hanover Direct of Weehawken has been sued on behalf of shareholders who will lose money if a hedge fund is allowed to buy the company at what some investors call a deep discount.

Hanover Direct informed investors and the SEC Tuesday that a suit had been filed seeking class action certification. The company said in a statement that it believes it "has no liability" in the case. The company also announced that it has appointed a special committee composed of three independent board members to review the $1.25 a share offer from hedge fund Chelsey Direct, LLC, which already controls a majority stake in the company and several seats on Hanover's board.


Hanover also plans to use an independent counsel and an independent financial adviser to review the offer, the company said.

The suit, filed in Chancery Court in Delaware, accuses Chelsey of gaining control of Hanover and manipulating the company and its stock price to enable Chelsey to acquire the remaining shares of Hanover "at less than fair value from the company's public shareholders."

Hanover announced Feb. 27 that it had received a purchase offer from Chelsey for less that half the value of the stock on Feb. 24, the last day of trading before the offer was revealed. The stock closed at $2.55 on Feb. 24, but by the end of trading on the 27th was down to $1.50. It closed at $1.35 Tuesday.

The suit was filed by Glenn Freedman, a Long Island businessman, and his company, L.I.S.T. Inc. of Lake Success, N.Y. Freedman and L.I.S.T. own 57,000 shares of Hanover common stock, according to the suit. The suit asks that Hanover be prevented from closing the deal with Chelsey and that shareholders be compensated for damages.

Seven executives and board members of Hanover and Chelsey were named as individual defendants in the suit.

Individual shareholders who saw the value of their Hanover holding plunge the day the Chelsey offer was announced said Tuesday they were glad the suit had been filed.

"I feel like we're being robbed in broad daylight and I feel powerless to do anything about it," said Joe Macewirth, an individual investor in New Providence who said he owns 18,500 shares of Hanover and stands to lose $20,000 if the Chelsey offer is accepted.

"You hear about the Enrons and the WorldComs, and how we've tightened up things with Sarbanes-Oxley, but you've still got situations where a hedge fund can come in and take majority ownership of a company and not look out for all shareholders, but only care about their own interests," Macewirth said.

He remembers feeling "like somebody punched" him in the stomach the morning the Chelsey offer of $1.25 was revealed.

Mark Shepard of Denver, who bought 2,000 shares of Hanover Direct in January for about $2.40 a share, also feels misused by Hanover and Chelsey. He said he realized that Hanover -- which had failed to file SEC reports for more than a year -- was an investment risk, but he studied the financial statements and felt the company was worth anywhere from $4 to $10 a share.

"What I didn't realize was that there was a chance I would be a victim of a hostile takeover and that all of a sudden the stock price would be cut in half," Shepard said.

The suit accuses Hanover and Chelsey of putting a negative spin on financial results released Feb. 21 that, according to Freedman, showed the company was in pretty good financial health. The company, which sells merchandise through a network of catalogs and Web sites including International Male and The Company Store, said then that it expects to report net sales of $407 million for 2005, up from $403 million in 2004, and net income of $11.7 million, up from $4.9 million in 2004. The company also manufactures some home furnishing products and provides fulfillment services to third-party direct marketing businesses.

Chelsey Direct LLC owns approximately 69 percent of the issued and outstanding common stock of Hanover, and has been accumulating stock steadily since 2003.

E-mail: [e-mail]

http://www.northjersey.com/page.php?qstr=eXJpcnk3ZjcxN2Y3dnFlZUVFeXkyJmZnYmVsN2Y3dnFlZUVFeXk2ODkyODQ...

http://www.knobias.com/individual/public/news.htm?eid=3.1.92ef88c0389a142f7517a5e2d46a9f077b89eea592...