June 29 (Bloomberg) -- Leonard Green & Partners LP and CVC Capital Partners agreed to buy BJ’s Wholesale Club Inc. for $2.8 billion, gaining the third-largest U.S. warehouse-club chain.
BJ’s investors will receive $51.25 in cash for each share they hold, the companies said today in a statement. That’s 6.6 percent more than Westborough, Massachusetts-based BJ’s closing price yesterday.
The takeover gives the firms BJ’s 190 wholesale clubs in 15 U.S. states for a valuation of about 7.1 times earnings before interest, tax, depreciation and amortization, less than the 8.9 times median multiple of six industry deals in the past five years. Using the same valuation as Leonard Green’s pending buyout of 99 Cents Only Stores, BJ’s would have garnered a price of about $57 a share.
“This was an opportunistic price -- management wanted to get it done,” Brian Sozzi, an analyst at Wall Street Strategies Inc. in New York, said today in an interview. “As a shareholder, you don’t want to see this type of deal and haggling going into the holiday season.”
BJ’s rose $2.18, or 4.5 percent, to $50.26 at 11:45 a.m. in New York Stock Exchange Composite trading. The shares had gained less than 1 percent this year before today.
Leonard Green, which manages about $9 billion, has taken part in at least five retail deals in the past year, including offers for fabric seller Jo-Ann Stores Inc. and J. Crew Group Inc. The firm also has holdings in Whole Foods Market Inc., the largest U.S. natural-goods grocer, and Petco Animal Supplies Inc.
The transaction may close in the fourth quarter, the companies said. Today’s offer is a 38 percent premium compared with BJ’s closing price as of June 30, 2010, when Leonard Green disclosed it owned 9.5 percent of the stock.
BJ’s, No. 3 after Costco Wholesale Corp. and Wal-Mart Stores Inc.’s Sam’s Club, is a membership-based warehouse club offering food, household products, apparel and office equipment.
“BJ’s is primarily an East Coast retailer at this point,” Sozzi said. “CVC and Leonard Green will have to invest a considerable amount of money to expand to the West Coast.”
The average premium for 22 pending or completed acquisitions of North American retail-discount store companies in the past five years was 20 percent, according to data compiled by Bloomberg. The biggest was the proposed $7.7 billion acquisition of Family Dollar Stores Inc. by Trian Fund Management in February.
Family Dollar rejected Trian’s offer in March, and Trian has since urged the retailer to reconsider.
Zayre Corp., now known as TJX Cos., opened the first BJ’s in Medford, Massachusetts in 1984, and named it after executive Mervin Weich’s wife, Barbara Jane, according to Hoovers.com. BJ’s became part of Zayre’s Waban Inc. unit, which then spun off BJ’s in 1997.
Morgan Stanley provided financial advice to BJs, and Wilmer Cutler Pickering Hale and Dorr LLP provided legal counsel. Potter Anderson & Corroon LLP served as legal counsel to BJ’s committee of independent directors, according to the statement.
Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Barclays Capital Inc. and Jefferies & Co. acted as financial advisers to CVC and Leonard Green, while General Electric Capital Corp. and Wells Fargo Capital Finance LLC provided financing.
Latham & Watkins LLP provided legal advice to Leonard Green while Simpson Thacher & Bartlett LLP advised CVC.
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