BJ’s Wholesale Club Inc. plans to run an auction to sell itself after receiving an offer from private-equity firm Leonard Green & Partners LP in recent months, said three people with knowledge of the situation.
BJ’s hired Morgan Stanley to help sell the company, said two people, who declined to be identified because the matter is private. Morgan Stanley will also offer to provide financing to potential buyers, or so-called staple financing.
Any deal would likely be with private-equity funds and not another retailer, said the people. BJ’s cash more than doubled to $85 million in the second quarter ended July 31 and its long-term debt shrank by three-fourths, making it attractive for a takeover, according to Joe Feldman, an analyst at Telsey Advisory Group in New York. Sales growth has trailed that of Costco Wholesale Corp.
“Month to month, BJ’s has been underperforming,” Feldman said today. “It seems like a good candidate for a going-private transaction.”
BJ’s climbed $5.31, or 13 percent, to $47.34 at 4 p.m. in New York Stock Exchange composite trading, the highest level since February 2002. The company, led by Chief Executive Officer Laura Sen, has a market value of about $2.6 billion, ranking it as the third-largest U.S. wholesale chain behind Costco and Wal-Mart Stores Inc.’s Sam’s Club.
Cathy Maloney, a spokeswoman for BJ’s, and a spokeswoman for Morgan Stanley declined to comment.
Comparable-store sales at BJ’s excluding gasoline rose 2.2 percent in October, trailing Costco’s gain of 5 percent. In the most recent quarter, sales at BJ’s stores open at least 13 months rose 2.9 percent, compared with 4 percent at Costco and 1 percent at Sam’s. Wal-Mart doesn’t report monthly sales.
A buyout may be valued at as much as $2.75 billion, based on the average premium of 20 percent for 11 acquisitions in the U.S. retail-discount stores segment in the past five years, according to data compiled by Bloomberg. The transaction would be the biggest in the sector since 2007, when KKR & Co. paid $7.3 billion, including net debt, for Dollar General Corp.
BJ’s had been using boutique investment bank Greenhill & Co. to explore its options, the people said, following the July announcement that Los Angeles-based Leonard Green had taken a 9.5 percent stake in the company.
The company recently interviewed a number of large Wall Street banks, including Goldman Sachs Group Inc., to help the retailer sell itself, one person said. The Natick, Massachusetts-based retailer determined it needed a larger bank, with a balance sheet like New York-based Morgan Stanley, to fund any sale of the business, the people said.
Leonard Green Holdings
Leonard Green & Partners, which manages about $9 billion, has holdings in such retailers as Whole Foods Market Inc., the largest U.S. natural-goods grocer, Petco Animal Supplies Inc. and fitness club operator Equinox, according to its website.
The Los Angeles-based buyout firm, founded in 1989, offered to acquire MGM Resorts International’s stake in Atlantic City’s Borgata Hotel Casino & Spa, people with knowledge of the bid said last month. Authentic Brands Group LLC, another Leonard Green holding, agreed in September to buy TapouT and other clothing brands associated with the mixed-martial arts network Ultimate Fighting Championship.