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.

It's been a little over four months since outdoor-gear retailer Cabela's Inc. agreed to a $5.5 billion takeover by closely-held rival Bass Pro Shops at a mammoth premium, valuing it at $65.50 apiece. Since then, it has slipped more than 26 percent from its post-offer peak to as low as $46.28 on Wednesday because the deal, once a sure thing, is now anything but.

Analysts and investors believe Cabela's could sink even lower -- to say, $35, if a deal isn't consummated.  But if a transaction is completed, even at a renegotiated price, the stock is arguably trading at steeper discount than it deserves. Which will it be?

Deal, New Deal or No Deal?
Bass Pro's acquisition of Cabela's faces challenges but only a couple of Wall Street analysts have pared their expectations
Source: Bloomberg

Here's why shareholders are rightly concerned:

Credit-card business: Part of the reason the deal took so long to come together was that Cabela's had to simultaneously line up buyers for both its retail and credit-card arms. Capital One Financial Corp. faces an uphill climb gaining approval from the Office of the Comptroller of the Currency to buy the latter because it's still in the doghouse with the regulator due to compliance deficiencies related to its program that prevents money laundering. There's a chance that new officials named to join the OCC in coming months could encourage the agency to soften its stance. Failing that, it seems that Cabela's can pay a $14 million break fee to Capital One. That creates an opportunity for other would-be buyers of the credit-card unit, which include Synchrony Financial Corp., Bank of America Corp., Citigroup Inc. and Toronto-Dominion Bank, according to Stephens Inc. analysts. But either way, there's uncertainty about this part of the deal.

Competition concerns: The deal is undergoing additional review by the U.S. Federal Trade Commission. The merger's chances may be dented by the fact that one competitor of the two chains, Gander Mountain & Co., is reportedly preparing to file for bankruptcy. 

Gun sales: As my colleague Brooke Sutherland has written, fear-driven gun purchases subsided when Republican Donald Trump won November's election. This is evidenced by Vista Outdoor Inc.'s recent tumble to a record low on the back of weak gun demand and growing inventory. 

Not-So-Great Expectations
Changing business conditions have dented investor confidence about whether a Cabela's-Bass Pro deal -- in its current form -- will be consummated
Source: Bloomberg

Tax reform: The introduction of a border-adjustment tax as well as the removal of interest deductibility could hurt a combined Bass Pro, which is set to take on a relatively heavy debt burden in its purchase of Cabela's. While the company could enjoy tax benefits attached to the construction of new stores and a lower overall corporate tax rate, these may not outweigh the losses created by other changes to the tax code.

Cabela's reports fourth-quarter earnings on Thursday. Any reassurance that a deal is on track or that both parties have agreed to a renegotiated price will give investors some long-awaited comfort. But even failing that, shareholders may want to refrain from punishing the stock any further. They should remember that Bass Pro is a motivated buyer, with a $230 million break fee on the line. It won't want to let Cabela's off its hook quite so easily.

Fishing for a Discount
Lenders are already showing concern regarding the underlying performance of the combined retailer
Source: Bloomberg

This deal has taken some blows, but not necessarily fatal ones. 

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

  1. Activist Elliott Management Corp., responsible for putting the company in play, didn't stick around -- the firm sold its 9.2 percent stake during the fourth quarter, according to a filing late Tuesday.

  2. While Cabela's can't solicit competing proposals for the credit-card business, if one was received, the company could pay this fee to get out of its deal with Capital One. It could even break the deal without having to pay anything if it's proven that Capital One misrepresented its ability to obtain timely approval from bank regulators, or if both Capital One and Cabela's mutually agree on a termination.

  3. As of Wednesday,  SunTrust Robinson Humphrey still pegged a 70 percent probability of the deal getting done. 

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at