Taking Down BJ's, Private Equity Eats Another Retailer (BJ, COST, WMT)

Banking, finance, and taxes

Published: June 17, 2011 10:47 am

BJ’s Wholesale Club Inc. (NYSE: BJ) is the latest private equity buyout target in the retail segment. Two active players in retail industry buyouts, Leonard Green & Partners and CVC Capital Partners, have submitted a joint proposal to buy BJ’s Wholesale Club. The buyout tandem announced the proposal in a regulatory filing this morning.

Leonard Green is already BJ’s largest shareholder, owning more than 9% of the of the outstanding stock. The buyout firm’s existing ownership positions in the retail industry include in the Container Store, David’s Bridal, Neiman Marcus and Whole Foods.

The London-based CVC Capital Partners’ prior buyout plays in retailing include: C1000, the Netherlands supermarket chain; Matahari Department Stores in Indonesia; and Cortefiel, the clothing retailer in Spain.

Massachusetts-based BJ’s operates more than 190 warehouse outlets in 15 states, largely on the East Coast. The company’s current market value is just shy of $2.7 billion, sufficient to rank the “wholesaling club” chain third in the U. S. behind only Costco Wholesale Corporation (NYSE: COST) and Sam’s Club of the Wal-Mart Stores Inc. (NYSE: WMT) organization.

In February, faced with Leonard Green’s equity position and prior buyout overtures, BJ’s Wholesale engaged Morgan Stanley to assist in exploring and evaluating “strategic alternatives” and to facilitate any corporate transactions.

Some industry insiders anticipate that any transaction would likely be completed with a private-equity firm, not another retailer. As early as the second quarter ending July 31, 2010, BJ’s began to achieve significant improvements in its balance sheet. Financial standing for July, 2010 reflect a doubling of the company’s balance sheet cash to $85 million and liquidation of nearly three-fourths of its long-term debt. Current balance sheet cash likely exceeds $200 million (based on $3.78 cash per share and more than 54 million shares outstanding). These developments underscore the wholesale club’s appeal to prospective acquirers.

After first-hour trading Friday, June 17, 2011, BJ’s shares which had opened at $49.50, are currently trading at $49.41, up 3.2%.

Jim Berdou

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