Shares of Bed Bath & Beyond (BBBY) jumped on Tuesday after Legion Partners Holdings, Macellum Advisors and Ancora Advisors announced the nomination of sixteen independent candidates for election to the board of the company. The three activist investors believe the company has fallen behind, but see Bed Bath & Beyond having potential to earn over $5 in earnings per share annually.
ACTIVISTS SEEKING TO REPLACE BOARD: Legion Partners Holdings, Macellum Advisors, and Ancora Advisors announced the nomination of sixteen independent candidates for election to the board of directors of Bed Bath & Beyond at the 2019 annual meeting of shareholders. The investor group is deemed to beneficially own, in the aggregate, approximately 5% of Bed Bath's outstanding common stock, including approximately 1% of shares underlying call options which are currently exercisable. "The Investor Group believes the magnitude of value destruction, coupled with the board's self-enriching mindset as evidenced by its excessive pay packages and failure to hold itself and management accountable, necessitate a change in a majority of the board at the Annual Meeting," the coalition said. "The Investor Group has developed a comprehensive plan to turn Bed Bath around which it will detail in a presentation to be released to shareholders in the near term. This will include […] recruiting a top-flight CEO to lead Bed Bath going forward. We plan to launch a search immediately to address this key position, with a number of interim CEO candidates ready to take the helm after the annual meeting. […] With the right board and management team in place, the shareholder group believes the company has the potential to earn more than $5 in EPS annually over the next few years," they added in a press release prior to today's open.
BIG CHANGE 'COULD BE IN THE AIR': Following the announcement that activist investors holding a 5% stake are launching a proxy fight to replace the company's senior management and its entire board, Bank of America Merrill Lynch analyst Curtis Nagle upgraded Bed Bath & Beyond two notches, to Buy from Underperform. While he is still cautious on the retailer's ability to significantly improve gross profit dollars, Nagle said the proxy fight "at the very least puts significantly more pressure" on the company to turn around results and profitability. The analyst sees the biggest opportunities in cost reductions, store closures and value creation from secondary concepts. Nagle argued that a possible proxy fight could lead to more disclosure regarding the company's five separate concepts – Bed Bath & Beyond, BuyBuy Baby, Christmas Tree Shops, Harmon and Cost Plus – and unlock of the value of its "good performers," with possible rationalization of "poor performers." The analyst believes BuyBuy Baby is most interesting given it is large, should benefit from the closure of all Babies R Us stores, and operates in an industry that is relatively protected from online players. Nagle also raised his price target on the shares to $21 from $11. Both Loop Capital and KeyBanc upgraded Bed Bath & Beyond to Neutral-equivalent ratings following the activist announcement.
GO-PRIVATE POTENTIAL: Following a report by The Wall Street Journal on the activist plans that was published on Monday, Raymond James analyst Bobby Griffin upgraded the stock to Strong Buy from Market Perform. The analyst said the report coincided with his view that Bed Bath & Beyond may either no longer be public or be on a journey to go private "within the foreseeable future." Griffin noted he sees feasibility for a going private push or transaction, either through private equity or at the initiation of an activist, and conjectured that the timing of such an event could happen near or soon after Bed Bath's fourth quarter earnings report, which is scheduled for April 10. The arguments that have caused investor antipathy to Bed Bath & Beyond are "real and center on the tired nature" of its nearly 1,000 North American Bed Bath & Beyond stores, he contended, pointing out that management has been slow to invest in its stores. The analyst set a $20 price target on Bed Bath & Beyond shares.
PRICE ACTION: In afternoon trading, shares of Bed Bath & Beyond have jumped over 25% to $17.41.
Bed Bath & Beyond
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