St. John Knits Shareholders Approve Deal

St. John Knits Inc. shareholders agreed Monday to accept a $522-million buyout offer from the company’s founders and a New York investment firm, capping off the upscale clothier’s most tumultuous year since it went public six years ago.

The $30-a-share offer from Chief Executive Robert E. Gray and his family and Vestar Capital Partners was approved by 91% of the 13.2 million shares that were voted Monday, said R. Brian Timmons, the Grays’ attorney.

The vote ends a six-month saga that began in December when Gray announced that his family wanted to buy the Irvine-based company with Vestar, so they could run it without having to constantly meet the lofty expectations of Wall Street.

At the time, St. John’s shares had fallen about 50% over a seven-month period after it missed two consecutive quarterly earnings estimates amid a series of quality-control problems. That news stunned investors, who had come to expect steady earnings growth from the women’s apparel manufacturer.

The buyout, which is scheduled to be completed by July 15, will give Vestar 77% of the new St. John Knits International Inc. The Grays will own almost 16%, and public shareholders will hold the remaining 7%. Currently, the Grays own about 14% of the company.

The Grays will continue to run St. John’s day-to-day operations, retaining their current positions. Marie St. John Gray, who co-founded the company 37 years ago with her then-fiance Robert, is vice chairman and head designer. Their daughter Kelly A. Gray is president.

Because the public will hold some shares, the restructured St. John will be “a hybrid between a public and a private company,” Timmons said. It will be subject to fewer Securities and Exchange Commission reporting requirements, and its stock will be delisted from the New York Stock Exchange after the transaction closes. Thereafter, the shares will be traded over-the-counter, he said.

In addition to their stake in the company, the Grays will get $17 million in cash and stock options. The options will allow them to collect an additional 5% of the company later if they continue working for St. John and if the company hits specific financial targets, Timmons said.

About 60 people attended Monday’s shareholders’ meeting, which was held in the cafeteria of one of St. John’s Irvine buildings. The news media were barred from the meeting.

“We’re very excited about it and very pleased,” Robert Gray said after the vote.

The lawsuits began rolling in almost immediately after the buyout was announced. About half a dozen shareholder lawsuits, which seek class-action status, have since been consolidated.

The unhappy shareholders maintain that the price--which started at $28 a share and was later bumped to $30 a share--is too low. The case is set to go to trial Nov. 1.

Timmons said the shareholders challenging the case hold less than 3% of the total outstanding common stock.

“It’s the old adage that sometimes the squeaky wheel gets the oil and all the attention,” he said. “These lawsuits are motivated by contingent fee lawyers, not shareholders, and they happen in virtually every transaction like this.”

Among those involved in the lawsuit are Parnassus Fund, a mutual fund in San Francisco that owns 325,000 shares of St. John. President Jerome Dodson said Monday he was not surprised by the vote.

“The fact that it passed does not mean that people think it was fair,” he said. “People wanted their money to go on to something else” and are hoping to get more money at the conclusion of the lawsuit.

“This is one of the few times in life when you can have your cake and eat it too,” he said.

St. John has struggled with various financial disappointments over the past year, beginning in May 1998 when it announced it would not meet analysts’ earnings expectations for the first time since the company went public in 1993.

Earlier this month, St. John reported a drop in earnings for the third consecutive quarter.

Earnings for the period ended May 2 fell 15% from a year earlier, to $8.26 million, or 49 cents a share. The results included a one-time, $1.68-million expense related to a settlement with Amen Wardy Sr. and Amen Wardy Jr. over a home-store chain that bore the Wardys’ name.

Sales in the period rose 12%, to $78.2 million.

St. John’s stock closed Monday at $28.88, up 25 cents.