Another Tender Offer for Skullcandy- It Will Be Good to See the Brand Private

I imagine you are all aware that Incipio reached an agreement with Skullcandy on June 23^rd to make a tender offer for the company’s common stock at a price of $5.75 representing a price of approximately $177 million.  That agreement allowed Skullcandy some time (until July 23^rd) to see if it could find a better offer.

Today, it received one.  Mill Road Capital has offered $6.05 a share “…conditioned on its completion of due diligence, obtaining financing and other matters.”  Makes me glad I didn’t take the time to read every word of the 97 page agreement between Skull and Incipio.

A little history; Skullcandy’s prospectus was dated July 19, 2011.  It went public the following day at a price of $20 per share.  As I write this Monday morning, the stock is trading at $6.09.  On June 22^nd, prior to the offer from Incipio, it closed at $4.45.  Not a great result over five years.

It’s interesting that the current stock price, at least at the moment I looked at it, is higher than the tender offer price.  It’s only four cents, but it makes you wonder if somebody doesn’t think there might be some yet higher bids either from Incipio or an as yet unidentified third party.

Back on February 4^th, 2011 I first wrote about Skullcandy going public when they released the first draft of their prospectus.  I said:

“The question for me is whether Skullcandy can retain its “first mover” advantage against companies like Sony and Nike as they inevitably expand their distribution to grow, which they will have to do as a public company.”

I guess the answer to my question is “no.”  I didn’t “know” it in 2011 with the same certainty I “know” it now, but it’s pretty clear to me that we’re in a market where building a brand is often in conflict with the requirements of being a public company.  Ask Quiksilver.  Ask Billabong which, while still public, is focusing on its three largest brands.  And I’ll continue to watch GoPro to see what happens there.

Skullcandy, you may recall, has been working to reduce it’s off price distribution since Hoby Darling became CEO.  I’ve been a cheerleader for that strategy even as I was uncertain it would work while Skull was public.

Assuming a deal gets down (which I think it will), what’s going to happen?  Well, on the one hand, we won’t know with any specificity since the days of issuing 10-Qs and holding conference calls will end.  But my guess is that without the public company pressure to grow revenues, Skull will be a successful and profitable smaller company in the niche it created.  Incipio and Mill Road must believe that too.