Wall St. doesn't think merger is going to go off at $61.5

2017-08-03T18:31:48Z

...or ever. Stock is in the crapper.

BUSINESS

Disappointing Cabela’s results add risk to merger with Bass Pro

By Josh Kosman

August 3, 2017 | 1:37pm

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Bass Pro Shops may fish for a drastically lower price in its deal to buy Cabela’s — and cut bait if it doesn’t get it.

Dismal quarterly results at outdoor retailer Cabela’s on Thursday raised the risk that archrival Bass Pro Shops will scrap a $5 billion merger if it doesn’t get a dramatic discount on the deal, sources told The Post.

Cabela’s said its sales at stores open at least a year tumbled 9.3 percent in the second quarter — a “sharp miss” that was driven mostly by slowing demand for guns and ammo, which account for 40 percent of the chain’s business, according to Goldman Sachs.

Quarterly earnings plunged 26 percent to $28 million as revenue dropped 4.3 percent to $890 million.

“I suspect Cabela’s is pretty nervous [about the merger] and without a lot of options,” a source close to the deal said.

A Raymond James analyst on Thursday argued Sidney, Neb.-based Cabela’s would only be worth $25 to $30 a share if the Bass Pro merger gets scrapped. In that scenario, a buyout premium of 40 percent would imply a deal price between $35 and $42 a share, according to traders.

That’s sharply below the $61.50 a share that Springfield, Mo.-based Bass Pro negotiated in April, down from the original $65.50 a share the companies when they merged last October under pressure from activist investor Paul Singer.

Shares of Cabela’s were down 1.3 percent to $55.60 in Thursday afternoon trades, nearly 10 percent short of the agreed deal price.

Reps for Bass Pro didn’t return calls.

Crucially, the merger agreement doesn’t allow Bass Pro to exit the deal for financial reasons, including the kind of business downturn that’s slapping Cabela’s this year.

The merger, however, is also contingent on Cabela’s getting Federal Reserve approval for a deal to sell its credit card business to Synovus Financial Corp. as part of the tie-up.

That could create a path for a possible Bass Pro exit, as insiders say it’s doubtful whether the Federal Reserve will vote on the Synovus deal in time to meet an Oct. 3 deadline that was set under the Bass Pro merger.

If the Fed misses that deadline, Bass Pro has the right to walk away from Cabela’s without paying a $230 million breakup fee as soon as the next day, sources following the situation said.

The Fed hasn’t set a voting deadline for itself, and is not planning to vote on the Synovus deal in the next few weeks, a source close to the situation said. While the Fed could take up the matter in late August or September, sources believe it will not rule until President Trump’s choice for the Fed Vice Chair, Randal Quarles, is approved by Congress and begins his new job.

Analysts believe Quarles, who has not yet been recommended by the Senate Banking Committee, could start at the Fed anytime between September and November.

A spokesman for the Fed declined to comment.

Meanwhile, the Synovus deal itself has complications that could increase the risk of a thumbs-down from the Fed, sources say. As part of the deal, Synovus plans to sell the Cabela’s credit-card receivables to Capital One. But the US Office of the Comptroller of the Currency decided earlier this year not to approve the Capital One deal in time to clear the Bass-Cabela’s merger.

That’s because Treasury is investigating Capital One for its compliance process for money laundering. Cabela’s reached a deal with Synovus after the sale to Capital One collapsed.

FILED UNDER BASS PRO SHOPS , CABELA'S , FEDERAL RESERVE , GUNS , MERGERS & ACQUISITIONS , PAUL SINGER

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