2nd UPDATE: BJ's Wholesale Accepts Leonard Green, CVC Offer
30 June 2011 - 4:00AM
Dow Jones News
NEW YORK (Dow Jones)--BJ's Wholesale Club Inc. (BJ) accepted a
$2.82 billion buyout offer from Leonard Green & Partners LP and
CVC Capital Partners, a price below some speculations but roughly
in line with Wall Street expectations since Leonard Green disclosed
its intentions nearly a year ago.
Shares of the warehouse club moved 4.6% higher to $50.27 in
recent Wednesday trading, less than 2% below the all-cash offer of
$51.25 a share. The bid represents a 6.6% premium to Tuesday's
close and is roughly 38% above BJ's price before Leonard Green
disclosed a 9.5% stake at the end of last June.
BJ's stock hit a 52-week high of $52.44 last month after it
reported fiscal first-quarter profit jumped a more-than-expected
29% versus the same period last year, and some analysts had
suggested that a bid of $55 to $56 per share would be needed to
entice BJ's to accept a deal. Earlier this month, Leonard Green
said in a federal filing that it and CVC had submitted a bid, but
it didn't disclose the terms.
The deal contains what's called a "no-shop" provision, which
prohibits BJ's from seeking another offer, and a break-up fee of
$80 million and potential fees of up to $7.5 million, or a total of
about 3.1% of the deal value, if BJ's fails to sell itself to
Leonard Green and CVC under certain circumstances. In exchange for
the no-shop clause, BJ's will receive a hefty $175 million
reverse-termination fee, or 6.2% of the deal value, if the pair
fails to buy BJ's under certain circumstances before a mid-December
deadline.
A consortium of banks, consisting of Deutsche Bank, Citigroup,
Barclays, Jefferies, General Electric Capital and Wells Fargo will
provide a three-part package of senior secured financing totalling
about $2.6 billion. That figure constitutes the vast majority of
the purchase price, once the over $195 million Leonard Green will
have spent to acquire its current stake is removed.
Leonard Green holds some 2.1 million common shares and 3 million
options to buy BJ's at $19.25 per share. The firm spent about $79.2
million on the common stock, or roughly $37.72 per share, and will
have paid somewhere north of $38 a share for its entire stake upon
the exercise of the options.
Media reports in April said Apollo Global Management LLC (APO)
had made a $3 billion bid, or just under $55 per share, for BJ's,
whose East Coast operations could complement Apollo's Smart &
Final warehouse chain on the West Coast.
A spokesman for Apollo, which last week completed the purchase
of CKX Inc., the company that owns the rights to the Elvis Presley,
Muhammad Ali and the popular American Idol television franchise,
declined comment on whether it made a BJ's bid. American Idol airs
on Fox television, owned by News Corp. (NWS, NWSA), which also owns
Dow Jones Newswires.
A Leonard Green spokesman couldn't immediately be reached.
Leonard Green and CVC will split ownership of BJ's equally,
according to a person familiar with the matter. Retail-focused
Leonard Green has been very acquisitive of late, taking part in
going-private transactions of J. Crew and Jo-Ann Stores, and
reported to be circling others. Leonard Green and CVC, a global
private-equity firm that started in London, have teamed up to
invest in swimming pool supplier Leslie's Poolmart, and CVC is a
partial owner of Pilot Travel Centers and Flying J truck stops in
the U.S.
BJ's doesn't have any additional comment, according to a
spokeswoman, but she said the company will soon file the merger
agreement, which will have additional details, with the Securities
and Exchange Commission.
Despite rumors and suppositions that BJ's would be sold for a
price in the mid-$50's, investors didn't really bite, and traded
BJ's for above the offer price only slightly in April and May. The
1.9% premium to current prices that the bid represents suggests
that market participants expect the deal to close, as is, during
the fourth quarter as BJ's expects, pending a shareholder vote.
BJ's and its larger, wholesale-club peers, Costco Wholesale
Corp. (COST) and the Sam's Club unit of world's largest retailer
Wal-Mart Stores Inc. (WMT), have thrived of late as cash-strapped
and wary consumers seek value.
Other beneficiaries of constrained consumer spending include
so-called dollar stores, and Leonard Green has an offer to take 99
Cents Only Stores (NDN) private with that company's founding
family. A recent bid from billionaire Nelson Peltz was spurned by
Family Dollar Stores Inc. (FDO), and William Ackman's Pershing
Square hedge fund has recently built an activist investment in the
chain, the second-largest behind Dollar General Corp. (DG), sold
back to the public again in 2009 by KKR & Co. (KKR), which
continues to maintain a large stake.
"The day after the sale becomes final, everyone, except me, will
have the same boss as the day before the sale," BJ's Chief
Executive Laura Sen said in an email to employees that was filed
with the SEC, adding that she looks forward to working with the
private-equity duo.
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
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