Cabelas Inc (NYSE:CAB) agreed to sell itself to privately held rival Bass Pro Shops Monday and it looks to be a pretty decent exit for anyone holding CAB stock.
With a deal value of $5.5 billion, the outdoor sports retailers did what an industry has to do when demand is sluggish: consolidate. Cabela’s results have been languishing for years. Meanwhile, Bass Pro Shops will double its store base.
The acquisition offer of $65.50 a share represents a premium of almost 20% to Cabela’s stock’s Friday closing price. CAB stock naturally rallied on the news, but only to about $63 a share in morning trades. That suggests there is still some incremental upside left in Cabela’s stock. It could also represent skepticism in some parts of the market that the deal will go through. We’ll see.
Either way, it ends a losing streak in CAB stock that stretches back for more than two years. It also makes Cabela’s stock a huge year-to-date winner with a gain of 35%.
An Activist Investor Puts CAB Stock on the Block
A sale was almost a foregone conclusion when activist investor Elliott Management Corp. took a big stake in the retailer. Indeed, the hedge fund is Cabela’s largest shareholder with a stake of more than 9%. The pressure on CAB management — and its late 2015 announcement that it would consider “strategic alternatives” — made the stock a good bet this year.
After all, it certainly wasn’t because of the fundamentals. Demand in the sporting goods segment has been soft for some time, especially for footwear and apparel. More ominously, Cabela’s suffered a drop in all-important same-store sales in every quarter except one over the last three years. As a result, gross margin has been under pressure since fiscal 2012.
About 4% upside remains between the deal price and where CAB is trading now. Arbitrageurs can make something of that and perhaps retail investors can too. Just be forewarned that the deal is still subject to a vote by Cabela’s stockholders and regulatory approval.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
