BPS/SPWH Merger Cancelled

Dec 9, 2021

Last December, we announced the intent of Great Outdoors Group, the holding company of Bass Pro Shops/Cabela’s, to merge the Sportsman’s Warehouse Holdings, Inc. (SPWH) into its already-significant portfolio.

That deal is off.

The Federal Trade Commission expressed concerns over the anti-trust nature of Great Outdoors Group adding another 110 retail locations to the already significant Bass Pro Shops/Cabela’s footprint. FTC regulators indicated it would likely oppose the merger.

Based on the $18/share acquisition price, it would have been worth about $785 million to investors. Instead, Great Outdoors Group will pay a $55 million termination fee.

Wall Street wasn’t pleased, and showed their displeasure by pushing the company’s stock price down 23.75% since the acquisition cancellation was announced on December 3.

Great Outdoors Group will pay a $55 million termination fee to Sportsman’s to terminate the deal, but Wall Street wasn’t pleased with the news, pushing the company’s stock price down more than twenty-three percent (23.75% to be exact) in the week since the cancellation was announced.

The FTC’s action and the Wall Street response isn’t unprecedented, but it’s yet another sign of the now-activist nature of the FTC. It seems the current administration is ending the “hands off” policies that have been the norm for the past few years. Now it seems their actions are based on “fair market competition.” Seems the abilities of companies to be bought-or sold- freely would be a critical component, but that’s apparently not the case. Recently the FTC has filed suit to block other acquisitions as well.

That’s apparently the reasoning that led Sportsman/Great Outdoors to decide to simply walk away from the deal.

And the walkaway from the premium $18/share price means the stock’s essentially trading at the pre-merger levels.

Yesterday, Sportsman’s Warehouse released their Q3 fiscal numbers. Overall, the company showed top line growth of four percent, with net sales of $401.0 million -an increase of $15.3 million (4%) over Q3 2020. Those numbers, however, included the addition of seven new stores in the quarter. For 2021, SW has opened a total of ten new locations, bringing their store count up to 122 stores in 29 states.

Taking out the new stores is a slightly less optimistic picture. Overall, store sales dropped 1.5 percent from 2020. Again, it’s worth reminding everyone that 2020 wasn’t exactly a typical year for anyone. Looking at Q3 2021 compared with the same period in 2019, sales are up 34.9 percent. Using that comparison, Q3 sales were up 66.3 percent over 2019’s $242.5 million revenue numbers.

“I am very proud of our team and pleased with the performance of the business during the third quarter.” said Jon Barker, Sportsman’s Warehouse CEO. “Despite a very difficult comparison and the terminated merger agreement with the Great Outdoors Group, Inc., our team has been able to achieve incredible results in the quarter and year-to-date periods.”

While the termination of the announced merger had a quick-and very negative- impact on the company’s stock price, it’s certainly done nothing to hurt the overall balance sheet. At the end of this quarter, the company’s showing total liquidity of $151.8 million. That was with just over $149 million in their revolving credit facility and $2.5 million in cash on hand. As of the close of business yesterday, however, the company had $57.million of cash on hand -due to the $55 million termination fee paid by Great Outdoors Group from their now ill-fated merger.

One interesting note to their Q3 earnings report..the company declined to give any fourth quarter or full fiscal year 2021 guidance. That’s likely disconcerting to analysts and investors, but given today’s uncertain business climate, who can blame them?

We’ll keep you posted.

— Jim Shepherd