FONTE
As
Bed Bath & Beyond BBBY +18.09% faces a growing risk of bankruptcy, the question of what will become of its strongest asset, Buybuy Baby, has loomed large.
The chain, which sells strollers, car seats, and other gear for infants, has seen sales weaken recently. But it consistently outperforms the company’s namesake
Bed Bath & Beyond stores, making it a top contender for a potential acquisition
“We believe creditors are in the best position to realize value from assets such as buybuy BABY,” wrote Bradley B. Thomas, analyst at KeyBanc Capital Markets, in a research note in early January.
Private-equity firm Sycamore Partners, for instance, has shown interest in acquiring Buybuy Baby and other Bed Bath assets as part of a potential bankruptcy process, according to a mid-January report from the
New York Times. At the time, Sycamore Partners declined
Barron’s request for comment;
Bed Bath & Beyond said it was “working with strategic advisors to evaluate all paths to regain market share and enhance liquidity.”
Bed Bath (ticker:
BBBY) has had a rough year. On Jan. 5, management warned it was considering filing for bankruptcy. Since then, the company has been hit with a delisting warning from Nasdaq, announced it is closing more stores, and reported a muted third quarter. On Jan. 26, Bed Bath said it was running out of cash and couldn’t pay back its debt, and a few days later, the company confirmed it had failed to make interest payments due Feb. 1.
Selling Buybuy Baby could give the company a much-need cash influx. But at this stage, the odds that Bed Bath could put such a deal together before a possible bankruptcy are low, says Victor Sahn, a partner in the bankruptcy and reorganization practice group at Greenspoon Marder. With no potential buyer coming forward publicly, a more likely scenario is that Bed Bath will sell the baby division off in the midst of bankruptcy procedures, he says. In that scenario, Bed Bath would continue to operate Buybuy Baby stores while brokering a final deal. If a sale doesn’t happen, he says, the infant division and all its inventory will likely end up in liquidation.
“There may be a buyer for the Baby stores,” said Sahn. “It’s a valuable subset of the entire operation.”
Bed Bath & Beyond didn’t immediately return
Barron’s request for comment
. Shares closed 18% higher at $3.33 on Thursday. The
S&P 500 was up 1.5%.
Buybuy Baby has weathered its parent company’s troubles relatively well. In the most recent quarter, Baby’s comparable-store sales slid by what the company described as “the low-twenties percent range,” while comparable sales at Bed Bath & Beyond locations declined by more than 30%. During the company’s investor day in 2020, management said sales at the company’s Buybuy Baby stores topped the billion-dollar mark. And since the end of fiscal 2022, the company has closed or plans to close just 11 baby stores, while
announcing more than 200 Bed Bath & Beyond store closures.
That strength hasn’t gone unnoticed.
Last year, activist investor Ryan Cohen acquired a significant stake in Bed Bath and urged the company to look into selling or spinning off Buybuy Baby. Under the right circumstances, the baby division could “justify a valuation of several billion dollars,” Cohen wrote in a letter last March. In addition, the spinoff could have helped the company pay off its debt and put cash on the balance sheet, he wrote.
Following Cohen’s letter, there were multiple reports that private-equity firms were
considering acquiring the business. Bed Bath eventually said it decided against the spinoff, a move some analysts believe torpedoed an opportunity for the company to regain its financial footing.
“A sale of Buybuy Baby to raise cash maybe could have forestalled this if the company had acted faster or a take private deal for
BBBY might have pre-empted their default, but neither have happened,” wrote James Gellert, CEO of RapidRatings, a financial health analytics company, in a commentary issued last week.
Certainly the company would have had more pricing power on a Buybuy Baby deal struck in early 2022. If a buyer emerges for the business now, it’s likely to land a relative bargain.
