UPDATE 1-Apollo eyes BJ's Wholesale - source
* BJ's has market value of about $2.7 billion
* Leonard Green has been evaluating buying BJ's
* Apollo owns related company Smart & Final
NEW YORK, April 28 (Reuters) - Private equity firm Apollo Global Management LLC (APO.N) is eyeing warehouse retailer BJ's Wholesale Club Inc BJ.N, which could fit with its Smart & Final chain, a source familiar with the matter said on Thursday.
BJ's, the third-largest U.S. wholesale club retailer, has a market capitalization of about $2.7 billion. The company's shares rose 1.2 percent on Thursday to $51.57. Apollo's interest in BJ's was earlier reported by the New York Post.
Apollo's interest could pit it against Leonard Green & Partners, which last month said it was evaluating whether to buy BJ's Wholesale Club and had entered into a confidentiality agreement with the company. [ID:nN22145835]
Wholesale clubs charge customers a membership fee, in return for which customers can shop for deals on large quantities of everyday items such as food and toilet paper.
In February BJ's Wholesale said its board had decided to explore a sale and other alternatives and had hired Morgan Stanley & Co (MS.N) to advise it in the process. [ID:nN03247477]
Apollo has a related business, U.S. cash and carry retailer Smart & Final. Apollo bought a controlling stake in the company in 2007 in a deal which valued Smart & Final at $813 million.
Apollo declined comment. (Reporting by Megan Davies in New York and Aftab Ahmed in Bangalore; additional reporting by Simon Meads in London Editing by David Holmes and Gerald E. McCormick)
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Apollo’s move to merge Henry’s with Sprouts is nothing short of brilliance – even if they wildly overpaid for the controlling equity stake in Sprouts (this information is not disclosed), the Sprouts format is one that works in its existing markets and will prove to dramatically increase Henry’s same store sales. Moreover, the format is highly scalable and I would expect that Apollo’s transaction will provide Sprouts with the balance sheet flexibility to quickly roll out this concept on a much more dramatic scale. Last, the Sprouts merger provides the Smart & Final brand with a sorely needed turnkey solution to address perishables, particularly its produce department.
However, the traditional Smart and Final format remains a challenge for Apollo, in terms of both price perception and product mix. Although acquiring BJ’s will provide zero in-market synergies, this acquisition provides Smart and Final with a couple of major additions that make this transaction compelling. First, BJ’s management team is deep, seasoned, and has an incredible track record of competing against Walmart Supercenters and Costco. They will add a tremendous amount of depth to Smart & Final’s team, who needs BJ’s management’s experience to compete against these highly capable West Coast operators. Secondly and more obviously, acquiring BJ’s gives Smart and Final a level of purchasing power that instantly makes Smart & Final competitive on key price points vs. Costco, Ralphs, Walmart, Stater Brothers, even Vons and Albertsons.
Smart & Final’s attempted foray into the Denver market came to an abrupt about face. It would seem that both size and scale are a necessary ingredient to ultimately propel this investment into a mark-to-market level that Apollo shareholders expect.
And BJ’s could certainly do it. http://wp.me/p1oClO-1g
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