Grasping for any possible lifeline, Bed Bath & Beyond (NASDAQ:BBBY) may be facing its final test before a complete implosion. After recent negotiations associated with a complex equity deal the company made in a desperate bid, management was able to secure financing. The catch? BBBY stock had to stay above a minimum threshold of $1.
Of course, the major concern now for stakeholders centers around some cruel math. At time of this writing, BBBY stock trades at around 80 cents. From that price point, it has to rise about 25% to get back to the minimum threshold. However, the current downfall — shares have lost roughly 50% in the trailing month — suggests a comeback is unlikely.
To rewind, The Wall Street Journal reported in February that Bed Bath & Beyond launched a “do-or-die rescue deal” with Hudson Bay Capital Management. Although the agreement took bankruptcy off the table, BBBY stock fell sharply on the news because the complex equity deal would dilute existing shareholders.
At the time, the retailer “priced an offering of convertible preferred stock and warrants” to “provide it with $225 million upfront and as much as $800 million over time.” Further, Hudson Bay was to provide “most of the fresh investment.”
One week ago, WSJ also reported that the retailer secured new terms with Hudson Bay to collect more funds from an equity offering. Rather than BBBY stock maintaining the deal’s original minimum price threshold of $1.25, the cutoff was reduced the current $1 threshold. Unfortunately, though, with shares now trading well below this point, Bed Bath risks no longer receiving funds.
BBBY Stock May Be Marching Against Inevitability
As InvestorPlace contributor William White mentioned back in early December, one of the biggest reasons BBBY stock has been taking a beating has to do with Ryan Cohen. As White noted “the activist investor sold his entire stake in the company” in 2022, causing BBBY stock to plunge.
White also noted that Bed Bath & Beyond issued shares to pay down debt. This inherently diluted shareholders, pressuring BBBY stock. Nevertheless, meme stock traders continued to support the beleaguered retailer. Sure enough, WSJ noted that BBBY’s high trading volume in part enabled the underlying company’s deal with Hudson Bay.
Still, too many desperate moves now appear to have doomed BBBY stock. For instance, InvestorPlace contributor Dana Blankenhorn reported yesterday that the retailer has announced plans for a reverse stock split. Shareholders of record as of March 27 will be able to vote on the proposal.
Ironically, a scheme designed to lift the price of BBBY stock may have sparked the opposite reaction. Indeed, as the Financial Industry Regulatory Authority (FINRA) warns, “If a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks.”
Frankly, investors are recognizing that Bed Bath & Beyond is in a frantic, possibly hopeless position.
Why It Matters
With the price threshold terms of the deal now broken, the ball really sits in Hudson Bay’s court. It’s possible that the firm may not want to pour good money into bad. Broader economic headwinds will also apply further pressure on the discretionary retail sector.
Needless to say, the storm clouds are looking ominous for BBBY stock right now.
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On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
