Bed Bath & Beyond Inc. (BBBY), one of the leading operators of specialty retail stores in the U.S. and Canada, has agreed to buy leading casual home furnishings and entertainment products retailer, Cost Plus Inc. (CPWM) in an all-cash transaction.
As per the agreement, Bed Bath will make a cash tender offer for all shares of Cost Plus for a consideration of $22 per share followed by a merger. The transaction has received approval from all shareholders of both companies.
The tender offer depends on the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, tendering of shares by a minimum of 90% of Cost Plus shareholders and other customary closing conditions. Additionally, Bed Bath has the option to buy newly issued shares of Cost Plus, under the top-up right in order to meet minimum tender condition.
Bed Bath has signed agreements with two largest stakeholders of Cost Plus — Red Mountain Capital Partners LLC and Stephens Investment Holdings LLC — agreeing to tender all their shares, which is about 26% interest in Cost Plus.
The transaction, which is scheduled to close in Bed Bath’s second quarter of fiscal 2012, is expected to be accretive to the merged company’s fiscal 2012 earnings per share. Bed Bath’s projects the acquisition to increase its fiscal 2012 earnings in the high single digit to a low double-digit percentage range. The company expects to fund the transaction with the company’s cash on hand.
Following the transaction, Cost Plus will retain its Oakland, California headquarters. The company currently operates 259 stores under the names World Market, Cost Plus World Market, Cost Plus Imports and World Market Stores in 30 states.
Bed Bath & Beyond Inc. offers merchandise under Bed Bath & Beyond, Harmon, Christmas Tree Shops (CTS) and buybuy BABY stores. The New Jersey-based company operated a total of 1,175 stores, including 995 Bed Bath & Beyond stores, 71 CTS stores, 45 Harmon stores and 64 buybuy BABY stores spread across 50 states of the United States, the District of Columbia, Puerto Rico and Canada. Apart from this, the company operates two retail stores in Mexico City under the name Home & More through a joint venture.
Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers, such as Target Corporation (TGT) and Wal-Mart Stores Inc. (WMT) as well as from departmental and specialty stores.
Currently, Bed Bath & Beyond holds a Zacks #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation on the stock.
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