After keeping the market guessing about the future prospects of the company, BJ’s Wholesale Club Inc. (BJ) recently announced that its board of directors has approved the $2.8 billion buyout offer of Leonard Green & Partners and CVC Capital Partners.
Going with the approval, BJ’s entered into conformity regarding the buyout offer of Leonard Green & Partners and CVC Capital Partners. Leonard Green had around 9.5% stake in the company and the acquisition of BJ’s will be the latest in its string of buyouts.
The 2.8 billion cash deal offers BJ’s shareholders $51.25 for each share of BJ’s common stock and is expected to be completed in the fourth quarter of 2011. Further, the deal requires the approval of the regulator and its shareholders coupled with the customary closing conditions.
The Sale Process
Following the recommendation given by the committee of autonomous directors in February 2011, BJ’s announced that it is looking for strategic choices, which might include a possible sale of the company.
The leading warehouse club operator, which faces intense competition from Costco Wholesale Corporation (COST), had hired Morgan Stanley to guide the autonomous committee during the evaluation process.
Earlier, the private equity player Leonard Green had offered to acquire the wholesale-club chain. Back in November 2010, the company made a buyout offer to BJ’s but nothing substantial had come out at that point of time.
Our view
BJ’s offers a striking prospect for acquisition as it has a healthy balance sheet with modest debt and offers an opening to a sturdy food and grocery market that is gaining ground.
Moreover, BJ’s continued investments in Club payroll and Club remodels facilitates the company to augment the sales of perishable items, which have been the driving factor, and have helped in increasing sales, improving traffic counts and gaining market share.
Further, as a warehouse club, BJ’s is uniquely positioned to drive traffic as it provides wider assortments of brands at compelling prices and offers its customers the choice of bulk or consumer-friendly package sizes.
Currently, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, BJ’s holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating
