There's nothing like the possibility of going private to send the shares of a publicly-traded company's stock higher. That's what happened when it was learned that a private equity fund with a major stake in BJ's Wholesale Club plans to recommend the retailer take itself off the (stock) market because its shares are undervalued.
Green Equity Investors, the second largest investor in BJ's with 9.5 percent of the retailer's shares, gave notice in a filing with the Securities and Exchange Commission (SEC) that it plans to talk with the chain about "potential options for enhancing shareholder value. These discussions may include a 'going-private' transaction, new financings (potentially through mortgage financings or sale leaseback transactions), or other similar transactions."
Neil Currie, a retail analyst for UBS Investment Bank, wrote in a client note that BJ's management has "meaningfully improved' the company's position and "we have long held a view that BJ's might be a candidate for private equity investment."
According to a Wall Street Journal report, David Strasser, an analyst with Janney Montgomery Scott, said in a note that BJ's is attractive for acquisition because, as the smallest of the warehouse clubs with locations on the East Coast, it has room to grow.
"At some point, [BJ's] will see improved productivity and lower operating costs," Mr. Strasser wrote. "These trends make [BJ's] attractive to private-equity investors, especially in a recovering economy."
BJ's offered the typical non-response response to the news.
Cathy Maloney, vice president of investor relations for BJ's, told The Boston Globe, "We have an obligation to run the business in a way that maximizes shareholder value for the long term. We work hard to provide our members with outstanding value while investing in our communities and our team members. We believe that this is the right strategy to increase shareholder value for the long term.'
Discussion Question: Does it make sense for BJ's Wholesale Club to go private from a strictly competitive retailing point of view?