Bed Bath & Beyond Boosted By Activist Battle, Analyst Upgrade

Shares of struggling specialty retailer Bed Bath & Beyond Inc. BBBY soared 25 percent Tuesday morning after multiple activist investors bought a 5-percent stake.

What Happened

Three activist investment funds -- Legion Partners Asset Management, Macellum Advisors and Ancora Advisors -- plan to leverage their new stake in the company to launch a proxy battle, The Wall Street Journal reported. The firms are looking to replace all 12 members of the board of directors and replace CEO Steven Temares who held the job since 2003, sources told WSJ.

The activist investors will argue the company hasn't sufficiently changed its business model to accommodate consumers who shop online or want unique experiences in stores. Instead, Bed Bath & Beyond's management team showed falling margins over the past years amid higher costs.

Raymond James: Going Private?

Raymond James' Bobby Griffin upgraded Bed Bath & Beyond's stock from Market Perform to Strong Buy with a new $20 price target.

Griffin said in the note the timing of the activist stake is a coincidence but adds to the bullish thesis. Specifically, the research firm had been analyzing for weeks the likelihood of Bed Bath & Beyond selling itself for four key reasons:

1. Ongoing governance issues have resulted in lower shareholder approval, culminating in a major proxy advisory firm recommending investors reject some of management's proposals.
2. The company's 11 directors and five named executive officers account for only 5.5 percent of common stock, which implies minimal protection against an activist investor campaign.
3. None of the current stock option programs are currently in the money and mid to upper-level managers could be pleased if an acquisition includes some promise of success sharing instead of out-of-money options they hold.
4. The math behind a potential acquisition yields a $22 per share take-out-price, which is a 59 percent premium to Monday's closing price.

Shares traded around $16.86 at time of publication, higher by 21.5 percent.

Related Links:

Barclays Turns Bearish On Bed Bath & Beyond Amid Turnaround Efforts

Bed Bath & Beyond Rallies After Q3 Print, But Analysts Aren't Buying It

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