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Why Bass Pro would court Cabela’s

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As a national brand, competitors come with the territory.

Springfield-based outdoor retailer Bass Pro Shops is no different. From Academy Sports to Cabela’s to Gander Mountain, Bass Pro doesn’t have a lockdown on shimmering showrooms, camouflage jackets or tackle boxes.

Earlier this month, citing “people familiar with the matter,” Reuters reported privately held Bass Pro Shops is working with an investment bank and exploring an offer to acquire the similarly sized Sidney, Neb.-based Cabela’s Inc. (NYSE: CAB).

In September 2014, the Wall Street Journal reported Bass Pro hired New York merger-and-acquisition advisory firm Moelis & Co. (NYSE: MC) to explore financing options. Moelis declined a request for information from Springfield Business Journal, and Bass Pro officials declined to confirm that report.

Last month, activist investor Elliott Management Corp. disclosed an 11 percent stake in Bass Pro’s competitor and called on Cabela’s to seek out strategic alternatives, including a sale to a private equity firm.

Bass Pro Communications Director Jack Wlezien declined to answer questions related to the recent Reuters report, and Director of Conservation and Community Relations Martin Mac Donald did not return calls for comment.

“We are aware of recent media speculation, and our policy is not to comment on recent market rumors,” Wlezien said by email.

Representatives of publicly traded Cabela’s also did not respond to requests for comment.

Jeff Jones, an assistant professor of finance at Missouri State University, wondered if the corporate “no comment” hinted toward more.

“If I was Bass Pro, though, what’s the first thing I would do if that wasn’t true? I’d release a statement saying, ‘That’s not true,’” he said. “The silence might mean yes.”

Jones said the reasons are plenty for Bass Pro to pursue Cabela’s.

“It is certainly not an unreasonable possibility because you see many industries where a big player would, rather than compete with some competitor, try to buy them,” Jones said, pointing to ongoing acquisition efforts by national pharmacy chain Walgreens.

Late last month, parent company Walgreens Boots Alliance Inc. (Nasdaq: WBA) announced a $9.4 billion purchase agreement with Rite Aid Corp. (NYSE: RAD).

“Rather than compete, why not just own them?” Jones said.

If Bass Pro has the capital in place to make a bid, Jones said a tender offer would likely be the first step.

“If Bass Pro really wanted to buy out Cabela’s, it could just go out and buy all of its shares. But obviously, if they do that, if they just buy shares and buy shares, the price of the stock would just go up and up. To gain majority control of a business, the prices may get prohibitively high,” he said. “The more efficient way to acquire a company would be to throw out a tender offer.”

A tender offer typically represents a premium price for shares. Offered upfront, the idea is to entice the seller to relinquish its shares altogether.

“By offering a premium to everyone, you’re paying more than the market price today. But you’re probably saving some money,” Jones said.

Another possibility for Bass Pro is to convert and sell shares publicly.

In an interview with SBJ this summer, Morris left open the possibility that the company could go public in the future.

“I want what’s best for the company, and today I think there’s a lot of advantage for companies that are private. So we’re not under short-term pressure. That’s today,” Morris said. “I want for our brand to win out over the long run. Does that mean some day it’s better for our company to go public? What’s more important is what’s best for the company. To tell you today that no, it would always be best for us to be private, I don’t believe that.”

The reports of a possible buyout sent Cabela’s stock up to nearly $44 per share on Nov. 5, the day Reuters ran the story. Shares started the day at $39 apiece. A week later, Cabela’s shares were trading around $42.

Cabela’s operates 77 stores in the U.S. and Canada – the same number as Bass Pro, not including Tracker Marine Centers – as well as 12 announced locations and one existing pickup center, according to Cabelas.com.

In the third quarter, Cabela’s reported a 4.6 percent revenue increase to $926.5 million. Net income for the outfitter founded in 1961 decreased 13.8 percent to $50.3 million in the quarter. Earnings per diluted share dropped to 71 cents compared to 81 cents in the same time period.

Underperforming new stores led the company to adjust its short-term growth plan, according to the earnings report. Cabela’s has opened 15 stores through the first nine months of the year and plans to add seven stores in 2016, maintaining its long-term goal to reach 225.

Bass Pro is scheduled to open its 78th store on Nov. 18 in Bridgeport, Conn., which will be its eighth to open this year. It opened a new store last month in San Jose, Calif., and has 16 stores currently planned across the United States and Canada. With the Tracker Marine boat line, Bass Pro operates 97 retail sites.

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