L.A. Group Sues to Block Warnaco Recapitalization

W Acquisition Corp., an investment group seeking to acquire apparel maker Warnaco Inc., filed suit Thursday to block a Warnaco recapitalization plan aimed at thwarting the Los Angeles firm’s takeover bid.

Top executives at Bridgeport, Conn.-based Warnaco, which markets clothing under Hathaway, Puritan, White Stag and other labels, had been seeking to complete a leveraged buy-out. The Warnaco management group dropped the buy-out plan Monday in favor of the recapitalization plan.

The lawsuit filed in U.S. District Court in Hartford, Conn., alleges that Warnaco’s recapitalization proposal would provide less cash than WAC’s $367.2-million offer.

In addition, the suit claims that Warnaco’s approval of the plan breached management’s fiduciary duty to Warnaco shareholders and would render Warnaco insolvent.

W Acquisition accused Warnaco of violating securities laws by “failing to properly provide shareholders with sufficient information to make an informed decision” about the WAC bid, which offered Warnaco stockholders $36 a share for all of the company’s 10.5 million outstanding shares.

Warnaco’s recapitalization plan would issue for each Warnaco share at least $7 in cash, notes with a face value of about $29 and stock in the recapitalized company.

Analysts valued the package at about $39 a share, or about $400 million.

Warnaco calls the package “financially superior” to WAC’s bid, even though the proposed debt issues alone would increase Warnaco’s debt nearly tenfold to $297.3 million from $30 million now.

A Warnaco spokeswoman declined to comment on the WAC lawsuit.