Don’t count on Cabela’s promise to keep ‘important bases of operations’ in Nebraska, experts say

Don’t count on Cabela’s promise to keep ‘important bases of operations’ in Nebraska, experts say
Photo Courtesy: World-Herald News Service

Cabela’s filed on Friday a regulatory document that formally enters into the record the idea of maintaining operations in Sidney, Nebraska, and Lincoln after the buyout by rival Bass Pro Shops.

But it isn’t likely that the pledge has any legally binding effect or would be enforceable if it were violated, mergers-and-acquisitions experts say.

“Bass Pro Shops appreciates and understands the deep ties between Cabela’s and the community of Sidney, Nebraska. Dick, Mary and Jim Cabela founded their company in Sidney in 1961, and the company has flourished with its base of operations there ever since,” reads the document filed with the Securities and Exchange Commission that outlines for shareholders the legal and financial details of Bass Pro’s $5.5 billion buyout offer made this week.

It continues: “Bass Pro Shops intends to continue to maintain important bases of operations in Sidney and Lincoln and hopes to continue the very favorable connections to those communities and the Cabela’s team members residing there.”

While the 2,000 people who work for Cabela’s in Sidney — population 6,800 — might take heart in that, it isn’t likely to make much difference if Missouri-based Bass Pro figures it can do without duplicate back-office employees. (It already announced the combined entity would have its headquarters in Missouri.)

Nor might it mean much to Capital One, the mega national bank based in Virginia with call centers all over the country that is taking over operation of Cabela’s credit-card business in Lincoln that employs more than 500 people.

“It is mostly puff and fluff,” said George Morgan, a business professor at the University of Nebraska at Omaha. “Just what exactly is an important base of operation? A desk, a phone and a secretary? Bottom line, they don’t want to look like a bad guy, but economics will prevail.”

Cabela’s declined to comment for this article. A spokesman for Bass Pro, when contacted Friday by The World-Herald, said: “We appreciate the opportunity, but at this point cannot comment on anything beyond what was included in the initial news release.”

Gov. Pete Ricketts said earlier this week he would pitch Bass Pro on keeping jobs in Nebraska — maybe even adding to the combined company’s total payroll in the state.

The “important base of operations” lingo appears on Page 209 of the 233-page document known as a proxy filed Friday. It is contained in a section where founder and largest stockholder Jim Cabela agrees to vote his shares in favor of the buyout. Also in that section is Bass Pro’s promise to include the “important base of operations” language in press releases about the deal. Nowhere does it say Bass Pro will maintain two headquarters or keep payrolls at any specified level.

And multiple Omaha mergers-and-acquisitions attorneys, who asked to remain unidentified because they don’t have first-hand knowledge of the matter, said words such as “hopes to continue” and “favorable connections” and “important bases” are vague and subjective. In the end, the attorneys agreed, Bass Pro could easily argue that almost any level of employment or activity meets the open-ended definitions.

Brian Quinn, a mergers-and-acquisitions professor at Boston College law school, said none of the language in question appears binding on the buyer, in this case, Bass Pro.

“I suspect the parties have an understanding between them about the future, but nothing enforceable by third parties,” Quinn said. In other words, there could very well be a gentleman’s agreement that Bass would keep some operations in Nebraska, but if Bass decided it changed its mind, there would be no legal recourse.

Sean Griffith, another law professor specializing in mergers and acquisitions, said it is not unusual for companies to make these kinds of promises in deals.

“But they rarely, if ever, make them in the form of an enforceable contract,” said Griffith, of Fordham University Law School in New York. “Management may intend all sorts of things, but intentions change when, six or 18 months down the road, keeping a local presence no longer makes economic sense. At that point, local operations get shut down.”

Just a brief look at the business history of company relocations and mergers and acquisitions demonstrates pledges, codicils and other corporate verbiage sometimes aren’t worth the paper they are written on:

» In 2011, food giant Kraft closed a chocolate plant in the United Kingdom. It acquired the factory after it won a hostile takeover battle with U.K. confections company Cadbury. About 400 people lost their jobs — after being promised by Kraft the plant would remain open if it prevailed in taking over Cadbury.

» In May, the government of Finland blasted Seattle-based Microsoft after the firm fired 1,350 workers in that Nordic nation. Microsoft wound up in Finland after it bought the mobile-phone business of Nokia, the country’s largest company. Finnish officials said the purchase came with the assurance that the country would be become a research and development hub to include a large data center. None of it ever materialized.

» Last year, a California-based semiconductor maker called Global Foundries acquired IBM’s chip-making unit. USA Today reported last year the company also inherited IBM’s pledge to retain a certain number of tech jobs in upstate New York as part of a state incentives program.

“We have no plans for layoffs or plans for shutting the plants down in any way,” was how Global Foundries Chief Executive Sanjay Jha put it in July 2015.

By October, that was out the door — jobs were cut, buyout offers on the table.

As for Cabela’s, most of the Friday filing is legal and financial mumbo jumbo, laying out amendments to corporate bylaws and how an offer by a third party is to be handled should one emerge. Part of that is what Wall Street calls breakup fees. 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.

Cabela’s operates about 85 stores, and Bass Pro about 100. Bass Pro had revenue last year of $4.5 billion, Cabela’s $4 billion. The all-cash per-share offer of $65.50 represents a premium of about 40 percent from Cabela’s closing price in late October after it became known that activist investor Elliot Management had taken a big stake.

Known for ramming through operational and cost-cutting moves at companies it invests in, Elliot began cashing out this week, reaping a $90 million profit by selling half its stake of almost 7 million shares.

In related news, Cabela’s said Friday it would hold its annual meeting Dec. 13. A document filed with the SEC said the company expected to have a separate meeting “at a time and date to be subsequently determined” for shareholders to vote on the proposed takeover.