Since Cabela's delayed its nomination process for directors earlier this year, the question on Wall Street about Cabela's changed from "if to "when". As in "when is the Bass Pro Shop acquisition finally going to be announced?"
Yesterday, news that Bass Pro Shops would be paying $65.50 per share for Cabela's stock, that question was answered.
Along with the announcement of the $5.5 billion dollar deal, Bass Pro Shops founder Johnny Morris sent a message to the rest of the sporting goods industry: you may be struggling, but the outdoors is doing just fine, thank you.
For the past year, general sporting goods retailers, for the most part, have had hard times. The Sports Authority and Sport Chalet are either going - or gone, Golfsmith is in Chapter 11 bankruptcy, and they're just the tip of the brick-and-mortar iceberg.
But the hunting and fishing segments of the sporting goods industry, despite declining participation numbers, have kept steady. And that steady performance may have actually helped precipitate this mega-deal. Compared to others -including Bass Pro Shops- Cabela's performance was lagging.
Last September, Cabela's laid off four percent of the corporate workforce in its longtime home of Sidney, Nebraska. Among those being cashiered were Sidney Mayor Mark Nienheuser, a Cabela's VP.
In October, Cabela's announced third-quarter earnings. They pronounced "dismal" by Wall Street and kicked off a series of articles criticizing the company for everything from overly-aggressive expansion to poor inventory management.
Less than a week later, activist hedge fund Elliott Management announced an 11.1 percent stake in the company- and promptly called for changes -including potentially breaking off profitable units or selling off the business entirely.
As early as November 5, it was reported by business media (and The Outdoor Wire) that Bass Pro Shops was exploring a purchase. Neither company would comment, but the rumors persisted.
On November 19, 2015, Bloomberg Business News reported that Cabela's was "shopping itself around" to private equity firms.
Shortly afterwards (December 2), Cabela's announced it would undergo a "strategic review". Having watched Wall Street for more than 35 years, I know that's "street speak" for either breaking up or selling a company.
Things were quiet through the rest of December, but on January 5, Cabela's changed its bylaws to delay director nominations. Wall Street observers interpreted that as a sign that Elliott Management was granting the company "breathing room" to pursue a sale.
In February, the most telling sign that "something" was happening: Cabela's Chairman Jim Cabela disclosed via an SEC filing that he had transferred 11.2 million Cabela's shares into a charitable trust in 2015. Since charitable trust transfers are irreversible, it was seen by Wall Street as the final confirmation that a sale of some sort was going to happen.
Yesterday, with the announcement of the acquisition, the last shoe dropped in a transaction most Wall Street observers have long considered a foregone conclusion.
After the announcement Cabela's shares jumped fifteen percent, closing at $63.18/share- an increase of $8.24/share. That's still $2 and change below the all-cash BPS purchase price of $65.50/share.
But that price is 39.7 percent higher than the December 1, 2015 price-the day before Cabela's announced the company would be undergoing "strategic review."
The official announcement of the deal points out that this acquisition will unite-in a private company in which Johnny Morris retains majority ownership - three disparate, yet similar groups: Cabela's- regarded as the leader of the trio in the hunting category, Bass Pro Shops, which focuses heavily on fishing, and White River Marine Group -the Morris-owned concern that owns Tracker Boats, Sun Tracker, Nitro, Taho, Regency, Mako, Ranger, Triton and Stratos boat brands.
Rather than point out the behemoth that represents, Morris characterized the announcement as a "special opportunity" to bring together "three special companies with an abiding love for the outdoors and a passion for serving sportsmen and sportswomen."
Cabela's CEO Tommy Millner echoed the sentiment, but added the Cabela's board had undertaken a "thorough strategic review" during which they assessed "a wide variety of options to maximize value" and unanimously agreed this deal would be the best for Cabela's shareholders and the company's customers.
"Conservation is at the heart and soul of Bass Pro Shops," says Morris. "Bass Pro Shops and Cabela's share a steadfast belief that the future of our industry, and the outdoor sports we all love, depends - more than anything else - on how we manage our natural resources." said Morris. "By combining our efforts, we can have a profound positive impact on the conservation challenges of our day and help foster the next generation of outdoor enthusiasts."
It's anticipated that the transaction will close sometime in the first half of 2017, barring regulatory hiccups. Just prior to that closing, Capital One will acquire "certain assets and assume certain liabilities" of Cabela's World's Foremost Bank. The cash proceeds of that transaction will remain with Cabela's until it is acquired by Bass Pro Shops.
Capital One will also originate and service the Cabela's CLUB, Cabela's co-branded credit card. BPS says it will maintain a "seamless integration between the credit card program and the combined companies' retail operations and deep customer relationships."
So what's really in store for the 19,000 "outfitters" (employees) of Cabela's?
That's a question we're certainly not in a position to answer, but despite Morris' insistence that he appreciates the history of Cabela's and relationship with Sidney, Nebraska, he's not built Bass Pro Shops to its present level by ignoring business basics.
And it's a fact that Cabela's has seen its operating margins drop by nearly a third between 2013 and 2015 (10% versus 7.7%, respectively) and repeated criticism of Cabela's management haven't been limited to the aforementioned issues of perceived over-expansion or ongoing issues with supply-chain management.
Perhaps a larger question is whether the deal would have happened at all had "activist" Elliott not decided to push publicly-traded Cabela's to take action to expand shareholder value.
Apparently, however, the agreed-on price satisfied Elliott, which purchased its 11.1 percent stake in Cabela's at prices ranging from $33.39 to $48.05/share. And this deal demonstrates Elliott Management's ability to instigate big transactions in the retail space.
Yesterday's announcement didn't come as a huge surprise to the outdoor industry, but it did prompt several phone calls with business predictions.
Some were serious. Virtually all pointed out Morris' longstanding reputation for driving hard bargains with vendors and suppliers.
Others were decidedly not.
One wag said marine engine manufacturers are already dreading the possibility that Morris would call them to order "1,000 of your 150hp outboards". The dread would be because "he'd only pay for them after he sold the boats he planned to hang them on."
It's funny, but points out one recognized fact in business: betting against Johnny Morris might not be a good idea.
As always, we're watching, and we'll keep you posted.