BJ's Wholesale Club Inc. would be able to improve its stores andproduct offerings and finally expand beyond its East Coast footprintif it were sold to a private investment company, retail industryanalysts said in response to reports yesterday that the discountfirm has put itself up for sale.
The Natick shopping warehouse has reportedly hired New Yorkinvestment bank Morgan Stanley to conduct an auction of BJ's.Bloomberg News reported that BJ's management received an undisclosedoffer to buy the company from Los Angeles private equity firmLeonard Green & Partners LP, which has a portfolio of brand-nameretail chains and owns almost 10 percent of BJ's stock.
Shares of BJ's gained nearly 13 percent on the news yesterday,closing at $47.34. At that price BJ's has a market capitalization ofnearly $2.6 billion.
'Clearly there's a belief that there's money to be made,' saidPaula Rosenblum, managing partner at Retail Systems Research. 'It'sa clean way to tighten yourself up.'
BJ's and Morgan Stanley declined to comment.
Leonard Green, which took a 9.5 percent stake in BJ's in July,said in a securities filing at the time that BJ's shares were'undervalued.' The private equity firm said it planned to contactmanagement to discuss options, including taking the company privateor finding additional financing.
Leonard Green did not return messages seeking comment.
Industry analysts said that it's unlikely another US retailerwould be interested in taking over BJ's and that a private equityfirm could help BJ's reinvent itself.
'To go private would get them out of the glare of the publicmarket as they expand into new markets and do things that might notbe great for near-term earnings, but might be good for building thecompany in the longer term,' said Jon Springer of the tradepublication Supermarket News.
This isn't the first time BJ's has dealt with Leonard Green. Fouryears after the Zayre Corp. discount chain opened its first BJ'sstore in Medford in 1984, BJ's was folded into Waban Inc., and in1997 Waban attempted to sell its struggling Homebase homeimprovement division to Leonard Green. After the plan fell through,Waban spun off BJ's as a separate company. Today, BJ's has 191stores in 15 states and is run by Wakefield native Laura Sen.
Leonard Green has a successful history of retail investments,including buying Sports Authority and Petco. The firm also hadstakes in Whole Foods Market and Life Time Fitness Inc., positionsthat it acquired and held 'without a perceived hostile role,' NeilCurrie, a UBS analyst, said in a report yesterday.
'Leonard Green seems to be the kind of investor that goes inthere to buy the stock, gets people excited, and then cashes out,'Springer said.
As a distant third to rivals Sam's Club and Costco WholesaleCorp., BJ's has been the subject of buyout chatter for years.
'I think the fact the field is so dominated by Costco and Sam'slimits what they can do,' said Jack Plunkett of the market-researchfirm Plunkett Research.
Sales at BJ's - $10.7 billion over its last reported fiscal year- are dwarfed by business at its competitors. Costco sales are aboutseven times higher, and Sam's Club's are about four times greater.All three companies reported improving sales at stores open for atleast a year in their most recent quarters.
The Natick chain is an attractive buyout target, retail analystssay, because it has stable membership income, which accounts forroughly 80 percent of its operating income, strong cash flow, and acash-rich balance sheet.
Some analysts have speculated that BJ's could sell for as much as$3 billion. Others said the reported auction may be an effort byBJ's to stall Leonard Green as it shops around for better offers.
'If someone has made me an offer and I didn't like it, it doesn'tseem out of the realm of possibilities to seek out other potentialbidders,' said Daniel Binder, managing director of Jefferies & Co.,adding that BJ's has been 'very tight-lipped' about the company'sintentions and its response to the private equity firm has takenlonger than expected.
The timing of the announcement, right before the holiday shoppingseason, isn't ideal, analysts said.
Consumers might see the news as a sign that BJ's is in troubleand hold off on making major purchases there, said Retail SystemsResearch's Rosenblum.
It's one of the rules of the retail industry, she said: 'You ridewhatever horse you're on until the season's done.'
Katie Johnston Chase
can be reached at johnstonchase@globe.com; Jenn Abelson atabelson@globe.com.
MASS. ACQUISITIONS
See notable recent mergers and acquisitions of Massachusettscompanies at www.boston.com/business.
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