Could federal regulators block the Bass Pro takeover of Cabela’s?

Could federal regulators block the Bass Pro takeover of Cabela’s?
Photo Courtesy: World-Herald News Service

Bass Pro Shops still has to get the green light from federal antitrust regulators before it can close on its purchase of rival Cabela’s, a process that could take well into the spring of next year.

It could result in the closure of some stores, the Sidney, Nebraska-based Cabela’s brand being sold or the deal being blocked entirely.

The proposed buyout, announced Monday, would combine two of the largest outdoor sporting goods retailers, which have competing locations in several markets.

Antitrust agencies — charged with protecting consumers and promoting competition — have been on a streak of challenging retail mergers: Last year, they blocked a deal that would have combined Staples and Office Depot, and they required Dollar Tree and Family Dollar to sell more than 300 stores before a merger could proceed.

The scrutiny comes as the value of total corporate mergers-and-acquisitions activity hit a record high in 2015, with retail contributing a large part of that.

Still, less than 4 percent of deals raise enough concern that antitrust agencies launch an in-depth investigation called a “second request,” and only about 2 percent of all deals are ultimately challenged in court by antitrust agencies. That’s according to Hunton & Williams, a Virginia law firm that represents corporate clients on antitrust matters. Those figures have held fairly steady under the Obama and Bush administrations, the firm said.

Will the Cabela’s deal trigger that kind of scrutiny?

It wouldn’t be surprising, said Amanda Wait, a partner at the firm and a former attorney at the Federal Trade Commission, the agency likely to review this case.

There aren’t many, if any, other stores out there that offer customers what Cabela’s and Bass Pro do: a full line of outdoor sports clothing and gear, in a retail setting designed to be an entertaining destination for shoppers.

But, she said, “just because these two companies might look alike, it doesn’t mean these are the only options.”

Defining the market that Cabela’s and Bass Pro operate in, “that’s where the big battle is going to be,” said John Lenich, law professor at the University of Nebraska-Lincoln.

Cabela’s estimated in 2015 it controlled 4.3 percent of a $60 billion to $65 billion North American sporting goods market, with Bass Pro controlling 3.5 percent, Stifel analyst Jim Duffy told The World-Herald.

Walmart had the biggest share, at 15.6 percent, and Cabela’s said full-line sporting goods stores, such as the Sports Authority, had 8.6 percent, Duffy said. Other contenders were Gander Mountain at 2 percent, Sportsman’s Warehouse at 1.2 percent and Scheels at 0.7 percent.

“There is still a lot of competition in this space,” said Edward Morse, professor of law at Creighton University. “I’m not sure that the narrative that says they’re going to behave like a monopolist will actually play out.”

It could also be argued that the merger will benefit consumers by allowing the combined company to compete more efficiently and lower prices, Morse said.

The Federal Trade Commission will look city-by-city at where Bass Pro and Cabela’s stores overlap, said Wait, the former Federal Trade Commission attorney. It will then look at what other competitors are in those local markets, whether national or local retailers. It will also look at which customers shop where, or, in other words, “whether Bass Pro and Cabela’s are competing to catch the same fish, or whether they’re competing for different fish,” Wait said.

Bass Pro will likely make the argument that the companies’ retail locations don’t overlap much, said Mark Ryan, head of the antitrust and competition group at Washington, D.C., law firm Mayer Brown. Bass Pro’s 99 stores are mostly in the Eastern U.S. and Canada; Cabela’s 85 stores are mostly in the Western U.S. and Canada.

They’ll also argue there are plenty of other places people can buy sporting goods, that, “Even though we’re both big names, we’re big names in a very big market,” Ryan said.

Regulators also will consider that the Internet now makes products widely available, Wait said.

If regulators determine the competition would be hurt in some markets, it could require the companies to make changes such as selling certain stores to a viable competitor, or even selling the Cabela’s brand to a competitor, Wait said. That happened in 2009, when Whole Foods was required to sell 32 Wild Oats stores and the Wild Oats brand name. The commission said the two retailers were each other’s closest competitor among premium and organic supermarkets.

Some in Sidney might be rooting for the commission to block a merger, but that’s a rare outcome. Far more likely is that the merger proceeds as proposed or with some concessions. That might be little comfort in Sidney if Bass Pro cuts a significant number of jobs.