Hudson Bay Capital has essentially agreed to make sure the troubled retailer will sell roughly $1 billion in shares as it tries to avoid bankruptcy.
Bed Bath & Beyond’s plan to use a public stock offering as a way to raise more than $1 billion and avoid bankruptcy will be backed by the investment firm Hudson Bay Capital Management, two people familiar with the situation said, speaking on the condition of anonymity because the terms of the deal have not been made public.
Bed Bath & Beyond disclosed the deal on Monday without naming Hudson Bay. It hopes that raising enough cash will restore the confidence of suppliers, preserve jobs and allow the company to pursue a turnaround plan it announced in August.
The retailer said on Tuesday that it had already underwritten the initial $225 million worth of shares it was selling. It plans to sell an additional $800 million over time, assuming “certain conditions are met.” The company did not disclose what those conditions were.
Hudson Bay, though, has essentially agreed to buy the stock, assuming Bed Bath & Beyond sells the additional shares.
Hudson Bay is a multibillion-dollar fund based in Greenwich, Conn. It often acts as a mergers specialist, either betting passively on whether company deals go through or fall apart or, at other times, pushing for such moves.
The firm is likely looking to take advantage of Bed Bath & Beyond’s rising share price, with hopes of selling when it goes even higher. Retail investors helped drive the price up nearly 100 percent on Monday, before Bed Bath & Beyond announced its plan to offer stock. Shares fell nearly 50 percent in trading on Tuesday, to around $3.
“This transformative transaction will provide runway to execute our turnaround plan,” Sue Gove, Bed Bath & Beyond’s chief executive, said in a statement. “As we make important strategic and operational changes, we will continue to take disciplined steps to enhance our cost base and improve our financial position.”
The Downfall of Bed Bath & Beyond
The home goods retailer, which was founded in New Jersey in 1971, faces an uncertain future amid worsening financial woes.
- Few Options: After a disappointing holiday season, Bed Bath & Beyond is said to be in discussions to sell pieces of its business and has warned investors of a potential bankruptcy.
- A Warning Sign: The disclosure that the retailer had defaulted on certain debt payments was the most salient sign of financial strain yet for the company.
- Turnaround Plan: The company laid out an aggressive plan in August to turn itself around that included store closings, cost cuts and layoffs. But it needs cash to execute its strategy.
- Selling Stock: Bed Bath & Beyond announced plans for a public offering, saying that it hoped the move would help it raise more than $1 billion and pay off its debts.
A spokesperson for Hudson Bay did not respond to request for comment. Bed Bath & Beyond did not respond to a request for additional comment on the transaction. The deal between the hedge fund and the retailer was reported earlier by Bloomberg.
Some analysts doubt whether the deal will be enough to help the struggling home goods retailer.
“The fundamental story for Bed Bath & Beyond is so broken at this point,” David Silverman, retail analyst at Fitch Ratings, said. “I don’t know that a short-term cash infusion that could buy them a few months, a couple of quarters, is going to change their fate.”
The deal with Hudson Bay came together within the past several weeks, the two people familiar with the matter said. Late last month, JPMorgan Chase, which helped give Bed Bath & Beyond a lifeline this summer by expanding its credit line, froze the retailer’s credit accounts after notifying it that it was in breach of the terms of its debt. As Bed Bath & Beyond raced to find cash to pay its debts, tensions built over the amount information it was sharing with its banks and other creditors and how quickly it was relaying it to them, the people said.
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The retailer’s lenders had dealt with a great deal of turbulence over the past few months. In early September, weeks after Bed Bath & Beyond secured rescue financing from JPMorgan and the investment firm Sixth Street, the company’s chief financial officer died in what was ruled a suicide. Industry executives have questioned whether the retailer had the right management in place to weather its challenges.
On Monday, Bed Bath & Beyond said Holly Etlin had been hired as the interim chief financial officer. Ms. Etlin has experience with restructurings and company turnarounds.
Rising interest rates have also made lenders warier of plowing more money into distressed companies like Bed Bath & Beyond. But equity may prove to be a new alternative.
Bed Bath & Beyond’s move echoes what appears to be a new playbook for distressed retailers. Another indebted company favored by meme traders, AMC Entertainment, sold investors preferred shares in August after common shareholders balked at its efforts to issue more stock, which dilutes the value of shares that are already held. Both sets of AMC shares have remained volatile. In 2020, Hertz tried to sell shares after filing for bankruptcy, but the Securities and Exchange Commission squashed those efforts.
“For those who are in this situation, for those who are desperate, this will be one instrument that they can use,” said Douglas Chia, the head of Soundboard Governance, a corporate governance consultancy. “Every couple years there’s a new instrument that investment bankers come up with, and it’s creative and it becomes the flavor of the month and everyone starts to use that. This could be the same thing.”
The question for Bed Bath & Beyond and the roughly 30,000 people it employed as of last February is whether it will be enough. Even if this financing goes through, the company faces the same challenges that have plagued it the past couple of months. The retailer is contending with low inventory in its stores as vendors hold back on shipping items because of worries about its finances. It also has a less sophisticated e-commerce operation than many of its competitors and a dwindling customer base.
The stock offering “by itself doesn’t change the business model or any of those tough decisions that they need to make,” said Patrick Collins, a partner who works on bankruptcies and restructurings at the law firm Farrell Fritz.
The deal could give Bed Bath & Beyond only a few more quarters of financial runway, said Seth Basham, a retail analyst at the investment firm Wedbush Capital.
The company is ramping up the number of stores it’s closing to more than 400, including Harmon stores. That’s a significant chunk of the 950 stores that it had when the closings began in August.
Sales keep sliding as well. Bed Bath & Beyond has said it expects comparable sales in the first quarter to decline 30 to 40 percent from a year earlier, but expects to see quarterly sales improving afterward.
It projects that its ability to have goods in stock will return to normal levels by the important back-to-college shopping season.
Not everyone is convinced.
“It is very difficult to see where they could be able to reverse those trends quickly, particularly given we’re in a somewhat challenging environment for retail goods,” Fitch’s Mr. Silverman said. “You’ve got competitors like Target, Amazon, Walmart and low- and mid-tier department stores that aren’t relinquishing market share.”
Source: Economy - nytimes.com
