$2.8 billion takeover for BJ's Wholesale

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June 29, 2011, 5:51 pm
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(NECN: Peter Howe, Revere, Mass.) While shoppers streamed in and out of 46 New England BJ's Wholesale Club stores Wednesday stocking up on Independence Day weekend goods, a pair of private equity firms were stocking up on BJ's itself -- a $2.8 billion deal to take the company private.

The deal has been foreshadowed for months. Still, the $51.25-per-share offer from Leonard Green & Partners and CVC Capital Partners represents a 6.6 percent premium over Tuesday's closing price of $48.08. The deal is expected to close in the fourth quarter, at which time BJ's would cease being a publicly traded stock subject to worries over daily share price movements and meeting or beating quarterly earnings-per-share estimates and could focus on longer-term plans for expanding beyond its current footprint of 190 stores in 15 Eastern states.

BJ's CEO Laura Sen said in a statement the private-equity backing "will BJ's' ability to execute our business model thoughtfully, profitably, and successfully.'' She told workers to expect "business as usual" and predicted with the exception of her own reporting to a new board, everyone else working for BJ's should expect to have the same boss after the deal closes.

That said, it's hard to imagine anyone spending $3 billion to change nothing.

Michael Tesler of Retail Concepts Inc., a Norwell, Mass., retail consulting firm, said he thinks BJ's is a strong franchise that has held up well with value-minded shoppers during the recession. But he thinks BJ's needs to continue to find ways to separate and distinguish itself in the shopping-club sector, perhaps by deeping its identity and value proposition as the middle-tier between deeper discounter Sam's Club (a WalMart unit) and more chi-chi Costco, known for offering high-end liquor and wines as well as pallet loads of diapers and paper towels and jumbo-sized boxes of cereal.

"They don't want it to be like the situation was with Staples, OfficeMax and Office Depot, where people couldn't tell them apart" and Staples became the default category-dominator, Tesler said.

Neither BJ's nor its prospective new owners gave any indications of what if any changes they plan to make in BJ's product offerings or brand identity. One obvious potential is to expand west or south from the 15 states it now serves, something that could be a drag on earnings and a discouragement to Wall Street, but far more palatable to long-term value-minded private owners who don't have to worry about a short-term stock-price swoon.

(Of the 190 stores, 46 are in New England, including 23 in Massachusetts, 12 in Connecticut, 6 in New Hampshire, 3 in Rhode Island, and 2 in Maine, according to company spokeswoman Kelly McFalls.)

One of the biggest challenges for BJ's, Leonard Green, and CVC is that warehouse stores are in a brutally competitive business environment. "They don't just compete with Sam's and Costco, they compete with Wal-Mart and Target, they compete with Lowe's and Home Depot, they compete with OfficeMax and Staples,'' and even for some products speciality online retailers like Diapers.com or giant Amazon.com.

Moreover, BJ's shoppers tend to be savvy, demanding, and more than willing to drive a few miles to save some bucks. Jenna Albano of North Reading, Mass., visiting the Revere store Wednesday to load up on supplies for a family Fourth of July weekend in Maine, said she will "kind of wait until I have to bulk up and buy a lot of stuff before I come" to BJ's, and she pays close attention to prices. "Some of their stuff can be a little expensive. You have to sort of price-compare because they can be more expensive than Wal-Mart,'' Albano said.

Carmen Santana of Revere, mother of two-week-old Raoul, said she loves the low prices for those at BJ's and frequently finds BJ's sells products for half the price of Stop & Shop.

Rick Judd of Everett, Mass., has been a member of all three of the major warehouse club chains. "Between BJ's and Costco, I like them both equally. I think BJ's has a little more variety than Costco does.'' He counts himself as a satisfied customer -- for now. "I hope they don't change" for the worse as a result of the takeover, Judd said, adding with a laugh: "Otherwise, I'll go to Costco's."

Leonard Green and CVC are making a $3 billion bet: BJ's can keep those shoppers happy, add more of them -- and pull down bigger profits doing it, too.

CLICK HERE to see a May 2010 "This Week in Business" interview with Laura Sen.

Tags: Peter Howe, BJ's Wholesale
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