Investor Sues BJ's Over Private-Equity Buyout Offer

MARK HAMSTRA

WILMINGTON, Del. — An investor has filed a lawsuit in Delaware Chancery Court here alleging that the $2.8 billion offer to buy BJ's Wholesale Club is “grossly inadequate,” according to reports.

The suit was filed after Westborough, Mass.-based BJ's said its board of directors had unanimously agreed to accept a buyout proposal for $51.25 per share from Leonard Green & Partners and CVC Capital Partners.

A spokesperson for BJ's could not be reached for comment.

The investor who filed the suit, Maxine Phillips, is seeking to represent all BJ's shareholders, according to a report in the Boston Globe.

Accepting the $2.8 billion offer “effectively placed a cap on BJ's corporate value,” the Globe quoted Phillips as saying, at a time when the stock was poised to recover in an improving economy.

As previously reported by SN, several law firms said they were investigating the proposed transaction on behalf of shareholders.

The $51.25 offer reflects a price much higher than the company has historically been trading at during the past five years, although it is slightly below a 52-wek high of $52.46 the stock reached on May 18. Reports said some investors thought the stock could be worth as much as $54 to $60.

Last year Los Angeles-based Leonard Green & Partners, which also owns a stake in Whole Foods Market and other retailers, said it had acquired a 9.5% interest in BJ's and was in discussions to take the company private. BJ's then said in February of this year that it was receptive to being acquired, after years of speculation that the company could be taken private in order to better compete and expand.

HANDS-OFF APPROACH

According to a report in SN sister publication Retail Traffic, Leonard Green historically has taken a hands-off approach to its retail acquisitions, which have included J.Crew, Neiman Marcus, The Container Store and Petco. The investment firm also has a reputation for helping retailers expand, according to Mark Keschl, national director of the retail services group with Colliers International.

“They like to be a little bit hands-off, and certainly the retailers they have acquired like them,” Keschl told Retail Traffic.

George Whalin of Retail Management Consultants, a Carlsbad, Calif.-based retail consulting firm, said the investment could help BJ's expand more rapidly, in a segment where it is a distant No.3 behind Wal-Mart's Sam's Club and Costco Wholesale Corp.

“The warehouse business requires a lot of stores because you run on narrow margins and need to make it up in volume,” Whalin told Retail Traffic. “I guess BJ's is looking at Leonard Green to help them accomplish that.”

With financial backing from private equity owners, it could conceivably break into markets with multiple openings simultaneously, creating economies of scale and building brand recognition, said Harry A. Ikenson, retail analyst/consultant to The Greenberg Group, a Hewlett, N.Y.-based retail real estate advisory firm.

“It's almost standard practice for retailers to try to open up a cluster of stores,” he said. “In many cases, BJ's was just not able to do that before.”

Separately, BJ's last week reported that sales for the five weeks that ended July 2 increased by 10.3% to $1.18 billion. Comparable-store sales for June 2011 increased by 7.3%, including a contribution from sales of gasoline of 3.8%. Excluding gas, comps were up 3.5%. Sales of food increased by approximately 5%, driven primarily by fresh offerings.
— Additional reporting by Elaine Misonzhnik of Retail Traffic