Purple Innovation Board Slams the Door Shut on Coliseum Capitals Takeover Offer

On Thursday after market close, Utah based mattress manufacturer Purple Innovation (US:PRPL) in a press release announced that its special committee Board had rejected the takeover proposal from insider shareholder Coliseum Capital. PRPL shares slipped -0.85% in after hours trading on the news.

Fintel journalists originally broke the original story back in September with details here.

Originally when the $4.35 per share offer was first announced, PRPL’s stock shot up 39% from all-time stock price lows below $3 per share.

However, today the Board told shareholders that they had thoroughly evaluated the takeover proposal and came to the conclusion that it would not be in the best interests for the company and other shareholders.

Coliseum Capital is a Connecticut based hedge fund that was founded in 2005 by Christopher Shackelton and Adam Gray. The hedge fund currently owns about 45% of the PRPL’s outstanding shares.

The Board stated that it had continued discussions with the hedge fund which was unwilling to raise its $4.35 offer and rejected claims that the company was worth more than this price.

Purple Innovations Chairman Paul Zepf shut down the hedge funds offer, saying “The Coliseum proposal undervalues Purple and fails to recognize the strength of our business today as well as our compelling future prospects”

Zepf went on to reiterate his confidence in Purple’s new leadership team and their ability to create significantly more value from the new long-range strategic plan.

Analysts Keith Hughes and Judy Merrick from Truist Securities thought the development was not surprising as the stock is now trading materially higher than the offer price.

The analysts highlighted that the move into positive EBITDA territory at the previous third quarter result boosted investor confidence as it removed liquidity risk for the stock which had overhung on the price. Truist Securities kept its ‘hold’ recommendation flat with no price target.

Earlier this week, Purple Innovations management presented at the ICR Conference in Orlando. The company announced that it would be launching a new refreshed product line for the Essentials, Premium and Luxe collections later in January at the Las Vegas World Market.

The new releases will give Purple distributors a renewed product line and better offerings and could drive demand growth over 2023.

Purple will next update investors during the release of fourth quarter and full year earnings in early March. The result may provide further details on the new products with management’s updated earnings outlook for the rest of 2023.

For the final quarter of 2022, the street is looking for PRPL to report a sales figure of around $200 million which would be the strongest quarter for the year.

EBITDA consensus forecasts suggest that analysts are expecting a positive figure of around $3 million, falling from the $16 million generated in Q3.

At the bottom line, the market is forecasting PRPL to report negative EPS of around 4 cents per share.

The result will boost Purple’s current 100%+ rally from lows if the company can show a continued recovery of positive cash flows from operating activities.

The chart below from Fintel’s financial metrics and ratios page for PRPL shows the significant decline in cash generation over the course of late 2021 and early 2022.

The most recent Q3 result shows the slight recovery in this trend.

Research on the Fintel quant platform also revealed that PRPL is experiencing above-average levels of institutional buying activity. This is explained by Fintel’s positive Fund Sentiment Score of 65.05 which ranks the company in the top 25% of 36,193 screened companies with the highest levels of fund buying activity.

Purple Innovation now has 249 institutions on the register that collectively own 91.9 million shares of the float. The largest holders on the register include: Coliseum Capital Management, No Street LP, BlackRock Inc., Freshford Capital Management, Fidelity Funds Management, Ave Maria Growth Fund, Bank Of America, Brandywine Global Investment Management, and Vanguard Group Inc.

This article originally appeared on Fintel

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