Steven Madden (NDAQ:SHOO) may find itself in hot water after the Clinton Group disclosed a 5.1 percent stake in the company and suggested several ways in which to unlock shareholder value in a Schedule 13D/A filing with the SEC. Shareholders are hoping that the company will embrace these measures and restore the stock price to its rightful levels.

The activist hedge fund believes that the market has misunderstood the prospects for the business and that has resulted in a stock that is trading at just 5.1x 2007 EBITDA. This valuation is both historically low for the company and well below peer valuations seeing between 10x and 13x 2007 EBITDA. Clearly, there is a disconnect here that shareholders want fixed.

"We believe that the Steven Madden brand has never been stronger, and we believe that the management team and board share this view," said Clinton Group VP Joseph De Perio. "That strength,and the Company's balance sheet, makes this an optimal time to seize an opportunity to enhance shareholder value."

What measure might this include to unlock value? Well, the Clinton Group recommended a Dutch Tender of $180 million to repurchase the company's shares. The hedge fund reasons that the company's current cap structure is inefficient given its free cash flow, ongoing strong earnings and limited capital expenditures. As a result, the company could use $72 million of free cash combined with a $110 million senior debt financing to fund a Dutch Tender.

The share repurchase would result in approximately 40% of the shares being taken off the market if the buyback is executed at a range above $21 per shares - of a 13.5% premium to the current market prices. The extraordinary accretion from this transaction produces implied stock prices worth more than current levels and a premium to the hedge fund's proposed tender price of greater than 20 percent!

These suggestions may be moot; however, as the company today announced that it was evaluating several potential takeover offers as well as strategic alternatives. In the end, this is all great news for shareholders as it could mean a significant jump in the valuation of their stock. Combined, these factors make SHOO a stock worth watching!

Related Companies
Skechers USA (SKX)
NIKE Inc. (NKE)
Bakers Footwear Group Inc. (BKRS)