Just as fishermen celebrate when they land a big catch, Cabela's shareholders can cheer Monday's news that the outdoor-gear retailer just hooked a buyer.
Cabela's agreed to be acquired by closely held rival Bass Pro Shops for $5.5 billion, almost a year after activist investor Elliott Management laid the bait for a sale. While Bass Pro had long been seen as one likely buyer, the transaction dragged out because Cabela's was simultaneously searching for an acquirer for its $5.2 billion credit-card arm. Capital One Financial triumphed in the battle for that business.
As it turns out, it was worth the wait. The offer price of $65.50 a share is at a level Cabela's hasn't traded at since May 2014 and represents a whopping 96 percent premium to the share price on Oct. 27, 2015, the day before Elliott unveiled its stake. Assuming the bulk of Cabela's Ebitda is derived from its core business, the $5.5 billion transaction value represents a forward multiple of 9.6, higher than was obtained by retailers PetSmart and Petco when they were sold (those deals commanded multiples of 8.4 and 9, respectively).
Bass Pro can afford to stretch (it beat out private equity firm Sycamore Partners, according to Bloomberg News) because of the millions in cost savings that should result from combining with its target. But improvements in Cabela's operations can also justify the price. The company's restructuring efforts had been lowering operating expenses and in its latest quarter, Cabela's registered gains in internet, catalog and same-store sales -- a feat it hadn't accomplished since the third quarter of 2013.
Notably, Cabela's shares traded as high as $63.05 a share on Monday. That's a slim 4 percent discount to the takeover price, reflecting a broad belief that antitrust concerns won't trip up a deal. This makes sense, given the competitive landscape: Bass Pro and Cabela's not only vies with specialty retailers such as Gander Mountain, Orvis and REI but also large-format stores like Dick's Sporting Goods and Academy Sports + Outdoors, as well as mass merchandisers like Wal-Mart, Target and Amazon.
For stockpickers, the Cabela's buyout will remove another large, niche retailer from the investment universe. But Bass Pro is getting a $2.4 billion preferred equity assist from Goldman Sachs's merchant banking division and private equity firm Pamplona to help finance the transaction. That sets the stage for an inevitable sale of their stake in the combined company -- perhaps through an IPO. In the meantime, while Cabela's shareholders may have lost a pure-play holding, at least some can count their gains.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Elliott stands to make profits of roughly $170 million, based on filings. But Sequoia Funds won't share in the spoils: it sold out during the second quarter.
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