Kellwood Company (NYSE:KWD) shares are up nearly ten percent today after Sun Capital threatened to take its $544 million buyout offer to the company's shareholders unless the board would reconsider its offer. Shareholders are clearly hoping that the company will either accept the offer or the firm will bring a higher buyout offer on the table.

"Our strong performance is to acquire Kellwood in a friendly negotiated transaction, but we are prepared to take all the necessary steps to protect the value of our existing 9.9% ownership position in Kellwood, including making a $21-per-share offer directly to Kellwood's other shareholders," said Sun Capital in a letter to the board.

Since Sun Capital did not increase their buyout price at all, it is very unlikely that we will see a response from the company. The next step would therefore be a tender offer by Sun Capital during which they would offer to tender shares for cash at $21/share or a proxy contest in which they would bring the issue to vote at the company's next annual meeting.

Kellwood shares dropped to a 52-week low of $14.21 after reporting severely damaged earnings earlier this year. The first Sun Capital offer came in shortly after this occurred and shares are still down over 50 percent on the year. Ultimately, this means that many shareholders are underwater on their investments and may not be interested in selling if the company can present a compelling long-term value proposition.

In the end, it will be interesting to see what becomes of this situation. It is highly uncommon for a private equity firm to go through with a hostile tender, but it will likely be their only option. Combined, these factors make KWD a stock worth watching!

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