Bass Pro Shop Cabela’s Merger: Perfect Storm

Bass Pro Shop Cabela's Merger

Yesterday was a bad day for the investors in the Bass Pro Shop Cabela’s merger; Cabela’s stock was down as much as 7% from its previous day close, over concerns that closing of the deal will drag on.

Investors in the Bass Pro Shop Cabela’s merger must have been disappointed when they looked at their Cabela’s shares yesterday. Trading at US$58.55/share by the end of the day, the stock is now almost 12% below the price agreed upon in the merger agreement.

Reasons for concerns in the Bass Pro Shop Cabela’s merger: on December 29, 2016, Cabela’s filed a Form 8-K with the SEC to report two main events:

  1. Cabela’s and Bass Pro have both received a second request from the Federal Trade Commission (FTC) in the US. While that doesn’t signal that the merger will be blocked, it does give a cue that it will be likely delayed.
  2. Capital One, which is acquiring the banking business from Cabela’s, has indicated that while it is confident that it will get the approval from the OCC (the US banking regulator), it is unlikely that such approval will occur by October 3rd, 2017.

These are problematic because they represent two serious roadblocks to the closing. While I still believe, like Cabela’s, that it will ultimately get granted approval by the FTC and the Canadian regulators some time in the first half of 2017, the additional twist with Capital One is a bit more worrisome. The focus on the October 3rd, 2017 date is because it is when either party can terminate their commitment to the merger without incurring financial penalties.

What to make of this information: in my opinion, for people already in Cabela’s stock, the best is to wait and see. The merger agreement language does indicate that an alternative agreement could be considered for the banking business transaction, which may allow for an close before the October 3rd deadline (the companies are looking into it). That they don’t succeed to do so by the deadline doesn’t mean that the parties of the Bass Pro Shop Cabela’s merger will automatically terminate the agreement, it just mean that they could do so for free. If nothing material has changed by then, that shouldn’t happen as the deal makes strategic sense for everyone involved. However, if any of the companies in the deal outperforms or under-performs the others significantly over the next 10-12 months, the parties may reassess their position. What’s more, if regulators require significant store sales in order to give their stamp of approval, Cabela’s and Bass Pro may use the banking transaction delay for a quick and easy way out of the merger with no termination fees to pay to each other.

Investors who do not have a position in this merger could consider allocating some funds to it on the hope that a solution will be found to the banking business purchase situation and that regulators will give the nod without requiring significant divestitures. However, they need to be aware that the risk profile of the Bass Pro Shop Cabela’s merger has now considerably worsened due to recent news.

Disclosure: Long Cabela’s.

This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.

7 thoughts on “Bass Pro Shop Cabela’s Merger: Perfect Storm”

    1. Optimistic may be a bit of an overstatement but I’m still in it if that’s what you’re asking! I don’t think there is much point getting out now. A lot of bad news priced in right now; the antitrust review; the credit card side deal falling apart. I think it’s salvageable as long as, of course, it’s not getting blocked by the relevant governmental agencies. On that, there is no further news than before so wait and see!

    1. It adds complexity to the deal. This is an example where everything goes wrong, while it was off a good start. However, it seems that the deal is not conditional on the card deal closing (but the opposite was true). So I think we just need to keep our fingers crossed on the antitrust review, because I believe that this will be the deciding factor. I still feel hopeful on that point, and as said before I’d expect at worst that the Bass Pro has to divest some stores. However, it’s tough to know for certain, especially with the increasing political risk those days..

    1. Yes that’s really good news. If this side deal goes through the price should remain the same (the only reason why it could have changed was because parties to the merger would have had a chance to kill the deal in October, giving leverage to Bass Pro to renegotiate). I still anticipate that the antitrust review will turn out ok, albeit with some potential divestitures. So again, if the bank deal goes through the larger deal should go through at full price some time over the summer and we can all relax!

  1. I think the revised terms are alright for both companies given the circumstances. However, I do not understand why Bass Pro does not give a reason for the revised price.

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