Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

"Good things come to those who bait" is a message that many fishing enthusiasts live by. For certain stockpickers? Not so much.

Ruane, Cunniff & Goldfarb, manager of the Sequoia Fund, said late Tuesday that it had dumped its stake in fishing, camping and hunting retailer Cabela's during the second quarter. Shares in the $3.6 billion company have been buoyed since last fall, when it gave in to pressure from activist shareholder Elliott Management and began exploring options including a sale. Suitors reportedly include Apax Partners, TPG and a team made up of of Bass Pro Shops and Goldman Sachs's private equity arm. 

Sequoia decided not to wait around for a deal -- it's doing its best to minimize further losses after being burned by a big bet on Valeant Pharmaceuticals.  

Still, when it comes to a sale, Cabela's needs to keep its price expectations in check, as I wrote back in April. That advice, if ignored, could result in balking buyers and a subsequent stock slump. Sequoia's managers, for one, said Cabela's shares hold "little appeal" without a deal. The company's management team "has struggled with the basics of retailing: the stores are expensive to build and operate and the merchandise, while compelling, is not competitively priced," they added, in a letter to clients.

Target Practice
Cabela's shares are trading above the 12-month consensus price target from Wall Street analysts. If the retailer's exploration of strategic options doesn't come to fruition, both figures will drop.
Source: Bloomberg

The retailer's sale process is dragging on because it is separately attempting to negotiate a sale of its credit-card arm. That unit is the right size for Synchrony Financial Group, and would boost the company's 2017 earnings per share by around 8 cents, according to a June 30 analyst note from Susquehanna International Group.

While Synchrony's president and CEO Margaret Keane didn't confirm its interest in Cabela's credit-card business, she said in early June that Synchrony would make it a priority to "go after" any portfolio acquisitions that were the right opportunity and price. If such a deal is sealed, a buyout of the core retail operations may follow.

Choosing Cabela's
Nearly one-fifth of former Sports Authority and Sport Chalet shoppers surveyed picked Cabela's as a sporting goods retailer that they plan on frequenting in the absence of those now-defunct chains
Source: MKM Partners
*Responses taken in June 2016

Other Cabela's investors seem prepared to wait things out, and that's not necessarily a bad move. Elliott topped up its stake during the first quarter and appears to have settled in. Patience has been known to pay off for hunters and fishermen -- maybe it will for Cabela's shareholders, too.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. It's not clear exactly how much Sequoia made from its Cabela's investment, but it first disclosed an interest in the retailer in its 2014 annual report. Assuming its buy-in price was somewhere around the stock's 2014 fourth quarter average of $52.67 and it shed its stake at or around its 2016 second quarter average of $49.75, it appears to have actually lost money.

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