Investors say Bass Pro’s offer for Cabela’s is on the ‘low end’ of fair, but still fair

Investors say Bass Pro’s offer for Cabela’s is on the ‘low end’ of fair, but still fair
Photo Courtesy: World-Herald News Service

The Bass Pro Shops offer of $65.50 a share to buy Cabela’s is a 40 percent premium over the price at which the Nebraska retailer’s stock closed Dec. 1 — just ahead of the company’s announcement that it was essentially for sale.

Bass Pro’s purchase price is short of Cabela’s all-time high, but it still is fair, even if it’s at the “low end” of fair, investors said.

“My fair-price range for Cabela’s was $63 to $76 a share,” said Mark Mulholland, whose Matthew 25 Fund in Pennsylvania owns shares of the Sidney-based retailer of hunting gear, fishing equipment and related paraphernalia. Because it’s at the low end of what Mulholland said he considered fair, the price means the deal will be profitable for the buyers, he said.

The per-share offer is almost double the closing in price from late October, just before New York-based hedge fund Elliot Management disclosed an 11 percent stake and its intent to agitate for changes at the underperforming operator of a catalog, brick-and-mortar stores and an e-commerce website.

But the offer on the table — subject to Cabela’s shareholder approval — still comes up short of the company’s all-time high. Shares traded around $72 in 2013 and 2014.

Perhaps blunting the prospect of a higher premium is a long string of failing-to-grow sales at stores open at least a year. Quarterly same-store sales at the operator of 85 locations have risen only once in about the past three years as firearms sales have fallen after what was probably a one-time boost.

“I think the huge run in 2011 and 2012 was largely fueled by ammo and gun sales based on fears of a repeal of the Second Amendment,” said Ted Bridges of Omaha wealth adviser Bridges Asset Management, whose $1.8 billion under supervision includes shares of Cabela’s. “And as those fears have flagged a bit, it was hard for Cabela’s to maintain” those sales.

Gun sales spiked in 2012 after the re-election of President Barack Obama, which led some people to think restrictions on gun ownership were in the offing. Also, firearms sales sometimes rise after mass shootings, such as the one in Newtown, Connecticut, in 2012.

The company first sold shares to the public in 2004 at an initial public offering price of $20 a share. A $1,000 investment in the shares then would be worth $2,280 at the per-share price offered by Bass Pro Shops on Monday.

Cabela’s had two other public offerings, a second one in 2004 at $22.50 a share and one in 2007 at $24.05 a share.

Shares hit their all-time low in 2008 below $5 a share, amid the general U.S. economic malaise, the mortgage crisis and bank bailouts. Anyone who bought at the bottom and has held on has been handsomely rewarded. The purchase of 100 shares then would have cost $418. If the Bass Pro offer is accepted, that 100-share stake would be worth $6,132.

“I think Bass Pro Shops as a buyer makes a lot of sense,” Bridges said. “Although I am not sure what the combined entity will look like down the road.” Bass is expected to shutter the headquarters functions in Sidney, consolidating positions at its headquarters in Springfield, Missouri.

Bass Pro Shops is privately held, ranking 94th on the list of Forbes magazine’s largest U.S. private companies, with annual revenue of about $4.5 billion. Cabela’s last year had annual revenue of about $4 billion.

Shares of Cabela’s have slightly outperformed broader benchmarks for the past 10 years. Since 2007, Cabela’s shares have had an annual return of about 9 percent, versus 7 percent in the Standard & Poor’s 500.

Its stock Monday closed up just over 15 percent, at $63.18 a share on a day when the broader market was down modestly.