Dive Brief:
- Bed Bath & Beyond is “fielding interest” from would-be acquirers of its BuyBuy Baby business, according to a Wall Street Journal report that cited anonymous sources. The company did not immediately reply to Retail Dive’s request for comment.
- Among those interested are Cerberus Capital Management — a frequent investor in retail — and a special purpose acquisition company chaired by the former CEO of Casper Sleep, Philip Krim.
- The report comes weeks after Bed Bath & Beyond reached a settlement with activist investor Ryan Cohen and his fund, RC Ventures. In taking a stake in the retailer, Cohen suggested a possible spinoff of BuyBuy Baby.
Dive Insight:
Roughly two months have passed since Cohen, the founder of Chewy and current chairman of GameStop (a position taken after an activist battle Cohen waged on that company), bought a stake in Bed Bath & Beyond that amounted to nearly 10% of its common stock.
Shortly after, the company reached a deal with Cohen that added three directors of RC Ventures’ choosing to its board. Two of those directors joined a board group devoted to “exploring alternatives to unlock greater value” from the retailer’s BuyBuy Baby business.
Now, according to the Journal, Bed Bath & Beyond is already taking preliminary steps toward divesting BuyBuy Baby, a move that could generate significant cash for investors like Cohen.
On taking a stake in the retailer, Cohen wrote in a letter to its board, “Given that [BuyBuy Baby] is estimated to reach $1.5 billion in sales in Fiscal Year 2023 with a double-digit growth profile and at least 50% digital penetration, we believe it is likely much more valuable than the Company’s entire market capitalization today.” Proceeds from a sale could be used to pay debt and buy back shares, Cohen added.
That letter, from before the settlement, also included several knocks on Bed Bath & Beyond’s management. For example, Cohen wrote that the retailer’s “highly-publicized and scattershot strategy is not ending the tailspin that has persisted before, during and after the pandemic’s nadir and the appointment of Chief Executive Officer Mark Tritton.”
Webush analysts led by Seth Basham said in a research note earlier this month that they “disagree with RC’s valuation of the Baby business, and we remain skeptical that [Bed Bath & Beyond] will ultimately spin-off Baby, despite the two parties recently agreeing to cooperate.”
The analysts pointed to operating margins for an independent BuyBuy Baby they estimated would be below 10% due to the added overhead of operating separately from Bed Bath & Beyond, as well as weak growth dynamics for the baby category given the birth rates for affluent families.
For now, BuyBuy Baby is still in growth mode — unlike its parent. The company plans to open up to 25 new stores under the banner this year “to capture the opportunity we are seeing in this key space,” Tritton told analysts earlier in April, according to a Seeking Alpha transcript. The chief executive also noted that BuyBuy Baby’s sales grew by double digits last year to $1.4 billion.
