Lone Star Value Management Objects to Hilltop’s Offer for SWS

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Hilltop Holding’s unsolicited $7 per share offer for SWS Group undervalues the company by at least $1 per share, one objector to the proposed transaction says.

Lone Star Value Management LLC owns 750,000 shares of SWS. Hilltop already owns or controls 24% of the shares of SWS through actual stock holdings or warrants.

Since November 2013, Lone Star has been advocating for SWS to sell itself to the highest bidder, a letter signed by CEO Jeffrey Eberwein says.

SWS should at least be sold at its book value per share, which is currently $9.64 per share, the letter continues. But taking into accounts warrants held by Hilltop and Oak Hill Capital Management, the diluted book value of SWS is $8.30 per share, according to Lone Star’s calculations.

The Hilltop bid is only a 15% premium to SWS’ price prior to the bid becoming public. The typical premium is over 30% and is why there should be a bid of at least $8 per share, Eberwein continues.

Furthermore, Hilltop CEO Gerald J. Ford argued that there are synergies between his company and SWS. The $7 bid does not reflect those synergies, Lone Star says.

SWS rejected a $7.50 per share offer just days prior to the Hilltop and Oak Hill investments in July 2011, the letter points out.

A “fair and robust” shopping process will result in superior proposals for SWS. Hilltop should not stand in the way of that process and the SWS board needs to form a special committee that does not include its own management as well as representatives of Hilltop and Oak Hill, Lone Star says.

At the time of the offer SWS put out a statement calling for shareholders not to take action yet.

SWS is trading at $7.55 per share as of 12:30 p.m. Monday, up $0.26. Hilltop is at $24.77, down 0.63.

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