BJ’s May Become a Private Club

Discussion
Jul 02, 2010
George Anderson

By George Anderson

There’s nothing like the possibility of going private to
send the shares of a publicly-traded company’s stock higher. That’s what happened
when it was learned that a private equity fund with a major stake in BJ’s Wholesale
Club plans to recommend the retailer take itself off the (stock) market because
its shares are undervalued.

Green Equity Investors, the second largest investor
in BJ’s with 9.5 percent of the retailer’s shares, gave notice in a filing
with the Securities and Exchange Commission (SEC) that it plans to talk with
the chain about "potential options
for enhancing shareholder value. These discussions may include a ‘going-private’
transaction, new financings (potentially through mortgage financings or sale
leaseback transactions), or other similar transactions."

Neil Currie, a retail analyst for
UBS Investment Bank, wrote in a client note that BJ’s management has "meaningfully
improved’ the company’s
position and "we have long held a view that BJ’s might be a candidate
for private equity investment."

According to a Wall Street
Journal
report, David Strasser, an analyst
with Janney Montgomery Scott, said in a note that BJ’s is attractive for acquisition
because, as the smallest of the warehouse clubs with locations on the East
Coast, it has room to grow.

"At some point, [BJ’s] will see improved productivity and lower operating
costs," Mr. Strasser wrote. "These trends make [BJ’s] attractive
to private-equity investors, especially in a recovering economy."

BJ’s
offered the typical non-response response to the news.

Cathy Maloney, vice president
of investor relations for BJ’s, told The Boston
Globe
, "We have an obligation to run the business in a way that
maximizes shareholder value for the long term. We work hard to provide our
members with outstanding value while investing in our communities and our
team members. We believe that this is the right strategy to increase shareholder
value for the long term.’

Discussion Question: Does it make sense for BJ’s Wholesale Club to go private
from a strictly competitive retailing point of view?

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4 Comments on "BJ’s May Become a Private Club"


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W. Frank Dell II
Guest
10 years 10 months ago

The question is, is BJ’s going private anything but a paper game to make money for one firm and not all the stockholders or is it a way to become a more competitive and larger firm? The problem comes in with quarterly reporting. Stock analysts have expectations of ever increasing profits which have be opposite to what the company should be doing. The company must lower its costs and add stores. This all requires investment. Management needs the ability, without losing their job, to say “we are going to invest for the next 3 years at an above typical rate to take advantage of market opportunities. Therefor, we expect the stock price to drop some, but we are in this long term, not short term.”

Stockholders want instant gratification will leave and those with long-term goals will be well rewarded. We see more of this in Europe than in the US.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 10 months ago
During my morning run today I was actually thinking about this very topic and what an advantage it is to be a privately held company in today’s market. Wall Street is no longer about helping a company grow long term, it is about short term gains at the sacrifice of long term opportunities. You only need to look at car manufacturers and banks to know there is a great deal of truth behind this statement. When a company is private, they can decide to take a hit on profits short term to install a new SAP system that in the long run will greatly improve their profitability. Or they can decide to only use the highest standard raw materials knowing they will make less per unit in the short term, but feel great about the product they sell and over time their consumers will taste the difference. Anchor Steam Brewery, Purdue, Mars and Clif Bar are four great examples of successful, privately-owned businesses. Going public is certainly a payday for the founders, but in today’s… Read more »
Dan Desmarais
Guest
Dan Desmarais
10 years 10 months ago

Frank and John got it right in saying that the eyes of Wall Street lead companies away from a better future.

An undervalued company, such as BJ’s, is in the perfect situation to hide from the eyes of Wall Street, re-structure and expand, and then re-list themselves after uncovering their brand new balance sheet. It might take 5 years. They make be making so much money in 5 years that they don’t feel like telling anyone beyond their bankers.

Stephen Baker
Guest
10 years 10 months ago

The opposing view here is that going private, in this instance, really has nothing with removing the prying eyes of Wall Street, or ratcheting down the quarterly earnings pressure. It will be about cost reductions, streamlining, asset enhancements and financial re-engineering.

It is great to be private when you start out that way but moving from public to private, especially when you are bought out by private equity, is never about doing anything better for the customers and other stakeholders in the company and always about the equity guys trying to make a killing. And for retailers this is the kiss of death. We only have to look at Sears and, despite its remaining public, see what a focus on finance vs running a real retail business does to the long-term outlook for the company.

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