Bass Pro-Cabela’s deal could be hindered 
by Capital One dropping bid for credit card business

Bass Pro Shops’ bid to acquire Cabela’s has hit a few snags. And the Nebraska-based retailer’s sagging stock price is a sign investors are getting nervous that the whole thing could unravel.

The latest holdup: Cabela’s and Bass Pro may need to find a new buyer for Cabela’s lucrative credit card business, which was set to be sold to Capital One as the retail side of the business would be split off and sold to Bass Pro.

The way things stand right now, Bass Pro can’t close on its purchase of Cabela’s retail business before the company’s bank is sold. Cabela’s in-house bank, called World’s Foremost, is run out of Lincoln and operates the Cabela’s Club Visa card.

Capital One withdrew its application to acquire the card business late last month, according to the U.S. Office of the Comptroller of the Currency, a government bank regulator that also is in charge of approving such an acquisition as the Capital One-Cabela’s tie-up.

The application withdrawal came after Capital One said it wouldn’t be able to clear up an unrelated problem with the OCC. Because of that, Capital One said it probably wouldn’t get the regulator’s approval to purchase Cabela’s bank before the merger deadline, so it yanked its application.

In the world of corporate mergers and acquisitions, the Oct. 3 deadline isn’t so far off.

Cabela’s declined to comment for this story but said in a December regulatory filing, in response to Capital One’s regulatory problem, that it would explore “alternative structures” to get the deal done. It didn’t detail what those might be.

Bass Pro wouldn’t answer questions about how it plans to get the deal done, and instead referred questions from The World-Herald to Capital One and Cabela’s. A Capital One spokesman didn’t respond to questions.

The clock is ticking.

“You’ve got seven months until October,” said Jim Zipursky, an investment banker in Omaha. “In the deal business — especially with regulatory compliance involved — that’s not all that long.”

It’s unclear whether Cabela’s is able to shop the credit card business around to other potential buyers under the terms of the deal before the Oct. 3 deadline.

Capital One still could file another application with the government regulator to acquire Cabela’s card business, but it’s not clear if and when the bank would be able to, said Colin Plunkett, an analyst at stock researcher Morningstar who covers Capital One.

“As long as they have this October deadline, Capital One will use that to their advantage to continue working to close the deal or get some kind of extension that Bass Pro and Cabela’s are willing to accept,” Plunkett said.

Capital One was to pay about $200 million for the card business, according to the terms of the deal, while committing to maintaining a relationship with a combined Cabela’s-Bass Pro.

A report by Reuters news agency last year, citing unnamed sources, said Citigroup, Bank of America, Capital One, Toronto-Dominion Bank and Synchrony Financial all were in the running to win the card portfolio, a big get considering the portfolio’s higher-than-average credit scores.

Some investors aren’t waiting around to find out what happens. Cabela’s stock has tumbled, giving up all of the gains it made since late September, just before the Bass Pro deal for $65.50 per share was announced. In the wake of the deal news, shares had soared to just above $63 each; on Wednesday, they closed at $48.54 each, down about 25 percent since the Bass-Cabela’s-Capital One deal was announced.

“The stock price is telling me the merger will get shelved or restructured,” Todd Zeuske, a shareholder from Verona, Wisconsin, said last week. He said he owned 6,000 Cabela’s shares before the merger was announced, but sold the last of them a week ago.

Still, hope isn’t lost that a deal could get done, said Zipursky, the Omaha investment banker. Generally speaking, merger deadlines can be extended if all parties agree, he said. That would avoid either side paying hefty “breakup fees” if the deal falls through.

(For instance, Cabela’s would owe Bass Pro $126 million under certain conditions that would cause the deal to not move ahead, while Bass Pro would owe Cabela’s $230 million if the deal fails for other reasons, according to the deal documents.)

If the Capital One part of the deal doesn’t go through, the most likely scenario is that Bass and Cabela’s find another bidder, Zipursky said. “It could drag on a little while.”

Other avenues for getting the deal done could be to spin off Cabela’s World’s Foremost Bank into its own separate company, allowing the Bass Pro deal to close, and then finding a buyer for the credit card operation. Bass Pro also could run the credit card business in-house, although as a private company Bass might not want the regulatory oversight that comes with running a bank, Zipursky said.

Any such restructuring of the deal could affect the per-share price paid by Bass Pro Shops — now set at the $65.50 offered in October. Shareholders have not yet voted on the proposed $5.5 billion deal, and Cabela’s management provided no updates or information on the buyout at its December annual meeting. The company is scheduled to report its latest quarter earnings today.

Meanwhile, the Capital One issue isn’t the only fly in the deal ointment: The Federal Trade Commission in December made a second request for information about the deal due to potential antitrust questions. Less than 4 percent of deals raise enough concern that antitrust agencies launch such an in-depth investigation, an antitrust lawyer told The World-Herald in October. Only about 2 percent of all deals are ultimately challenged in court by the agencies.

The FTC is charged with making sure company tie-ups don’t create anti-competitive situations — such as one company having too much of a particular market: in this case, a combined Bass-Cabela’s controlling too much of the outdoors or firearms businesses.

A so-called second request can make a company jump through hoops — a lengthy process that can take months.

Still, the FTC isn’t a top concern for investors, especially with the Trump administration now in office, one Wall Street analyst said. The administration probably could direct the FTC to go easier on potential tie-ups of competitors, said the analyst, who didn’t want to be identified because he is not authorized to speak to the media.

Lee Dunham, a finance professor at Creighton University, said he isn’t concerned about FTC approval, or any bank tie-ups. He says the Cabela’s-Bass Pro deal most likely will get done, even if it means finding a new buyer for the credit card business.

Meanwhile, one investor that probably isn’t sweating amid the uncertainty: Elliott Management, the so-called activist investor that pressed for the sale in the first place.

The New York hedge fund entered the scene in October 2015, began pressing for changes like a sale of the company, and just under a year later got its way when the Bass Pro deal came together. Elliott cashed out its holdings right after the announcement, when the stock was trading at roughly $63 per share, profiting by at least $90 million.

For Sidney, snag is a ray of hope clouded by uncertainty

While investors might be unsettled by news that a deal for Bass Pro to buy Cabela’s could be in trouble, it might seem like a bright spot of hope for people who live in Sidney, Nebraska, the town of 6,800 that Cabela’s calls home.

Around 2,000 people work for the hometown retailer in its headquarters about six hours west of Omaha. Bass Pro has said the headquarters will be combined in its hometown of Springfield, Missouri, sending waves of worry through the Panhandle town.

The company will maintain “significant” operations in Sidney, but in a meeting with employees in October, Bass Pro Chief Executive Johnny Morris conceded that there would be job cuts.

The uncertainty that has dragged on for almost two years already had taken a toll on local commerce, Sidney residents told The World-Herald in December.

Now, there’s another layer of unknowns as some on Wall Street and elsewhere question whether a Bass-Cabela’s deal can get done.

“It just seems like there’s still that steady level of uncertainty throughout the community,” said Sidney Mayor Joe Arterburn, who once worked for Cabela’s.

“If the deal goes through, the city is ready to work with Bass Pro Shops through the transition,” he said. “We’re ready to meet with Johnny Morris and explain why Sidney’s been great for Cabela’s all these years and why it can continue to be great for Bass Pro.”

Still, even if the deal falls through, things won’t go back to normal in Sidney, said Jim Zipursky, an Omaha investment banker. The company has put itself up for sale, and another buyer would probably step up even if Bass Pro goes away.

“If they think this could save the company or the town, that ship has already sailed — and it might have been the Titanic,” Zipursky said. “At least with Bass Pro, they have an idea of what it will look like. The next group in — no idea.”

Uncertainty can’t be good for the company’s operations, either.

Scheduled to report fourth-quarter earnings today, Cabela’s had been struggling with same-store sales for at least a year before it began exploring strategic alternatives under pressure from Elliott Management, the New York hedge fund that took a big stake in Cabela’s in October 2015 and then lobbied for big changes, leading to the Bass sale.

The poor same-store sales might have been part of the reason Cabela’s fell prey to Elliott in the first place.

Like investors who have pushed Cabela’s stock down more than 25 percent since the announcement of the Bass deal — and the subsequent snags — employees may be jumping ship, too.

“Deals that drag out are deals that may never close, and if they do, they lose people along the way,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business focusing on corporate governance. “Employees are frightened by uncertainty. The longer it lasts, the more likely they are to look for another job that seems more certain.”

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