Last week Bloomberg published an interesting article about BJ’s. Here is an excerpt from the article:
BJ’s Wholesale Club Inc. (BJ), the cheapest discount retailer in America, may be poised to extract $750 million for shareholders at the expense of its private equity bidders.
Almost five months after BJ’s board decided to explore a possible sale, Leonard Green & Partners LP and CVC Capital Partners offered to buy the warehouse-club operator without saying how much they would spend, a regulatory filing last week showed. BJ’s could ask for $53 to $57 a share, based on valuations of comparable retailers and the price Leonard Green agreed to pay for 99 Cents Only Stores (NDN) in March, according to data compiled by Bloomberg.
While BJ’s equity is worth less per dollar of sales than any U.S. discount retailer, a deal could now hand its owners a 33 percent gain since the Westborough, Massachusetts-based company put itself up for sale in February, the data show. BJ’s, which has more cash than debt and the industry’s lowest operating margins, is attracting private-equity bidders looking to turn a profit by cutting costs and raising prices for food and fuel, according to Westwood Holdings Group Inc.
Even though the article focused on the upside potential it was clear that the downside in this stock was limited. BJ’s closed at $45.55 on June 20th, the day the Bloomberg article was published. Today, BJ’s disclosed that it agreed to sell itself to Leonard Green & Partners LP and CVC Capital Partners for $51.25 a share. BJ’s currently trade at $50.26 and gained 10.3% since June 20th.
Hedge fund managers always talk about picking companies with huge upside potential and limited downside risks. This was a great example. Even though the stock didn’t fetch the prices argued in Bloomberg’s article, the return is attractive relative to the risks. Several hedge funds already had large stakes in BJ’s at the end of first quarter as well. Here are the top hedge funds in BJ:
1. Steve Cohen – SAC Capital: $139 Million
2. Ken Griffin – Citadel Investment Group: $120 Million
3. Richard Perry – Perry Capital: $80 Million
4. Kevin Michael Ulrich – Anchorage Advisors: $60 Million
5. Matthew Halbower – Pentwater Capital: $52 Million
6. Phill Gross – Adage Capital: $49 Million