Bed Bath & Beyond adds room to grow
May 10, 2012 (Menafn - The Record - McClatchy-Tribune Information Services via COMTEX) --A 495 million deal for a retailer creates a new vehicle for expansion.
Union-based retailer Bed Bath & Beyond Inc. has bought itself some room to grow, with a deal to buy the 259-store housewares and specialty food retailer Cost Plus Inc., its most expensive purchase ever.
Bed Bath & Beyond said Wednesday that it will pay 22 each for Cost Plus' shares, a 22 percent premium over the closing price Tuesday. The cost of the deal is estimated at 495 million.
Cost Plus, based in Oakland, Calif., operates stores under the Cost Plus World Market and World Market names. The stores have been described as a cross between Pier 1 and HomeGoods, with food. The stores sell non-perishable, internationally themed gourmet and gift-type food items, and in some locations, wine and alcohol as well.
There are no Cost Plus or World Market stores in New Jersey, and the closest stores to the Northeast are in the Washington area.
The deal, analysts and industry experts said, gives Bed Bath a new growth vehicle, now that it is reaching market saturation for its namesake Bed Bath stores.
"They're getting maxed out on the number of Bed Bath stores that they can operate in the U.S.," said Warren Shoulberg, editorial director of the trade publication Home Textiles Today. "So I'm sure they're looking for another big growth vehicle. And they have a ton of cash. No debt. They certainly have the money to do something like this."
Bed Bath will pay cash for the deal. The company had 1.76 billion in cash and cash equivalents on its balance sheets as of Feb. 25, according to its financial reports.
Bed Bath has 993 Bed Bath stores in the United States, Puerto Rico and Canada. Over the past decade, it has acquired three other chains -- Harmon Health and Beauty, Christmas Tree Shops and Buybuy Baby.
The announcement gave Cost Plus its highest intraday price since August 2005, and pushed the stock up nearly 22 percent for the day. It closed at 21.93.
It also is likely Bed Bath will use the acquisition to add specialty food departments in its Bed Bath stores, similar to the beauty supplies departments it added after buying the Harmon Health and Beauty chain.
Laura Champine, an analyst with Canaccord Genuity, in a note to investors, said, "The transaction will expand Bed Bath & Beyond's consumables assortment into the gourmet food and beverage categories, while Bed Bath & Beyond provides greater scale and capital structure to support Cost Plus' 259 stores."
Shoulberg said Bed Bath will probably integrate Cost Plus food offerings into Bed Bath stores in the same way it integrated beauty products. "They took 2,000 to 3,000 square feet of Harmon product and put them in Bed Bath & Beyond stores," he said. "So a lot of the bigger Bed Bath stores have Harmon departments in them now, and I bet you that's what they're going to do with the food, too."
The strategy behind adding food products, as with beauty products, Shoulberg said, is that "people shop more frequently for consumables, and so this gets people into the Bed Bath stores on a more regular basis as opposed to coming in once a year to buy a blender or a towel."
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