NEW YORK BJ's Wholesale Club Inc BJ.N agreed to be bought by private equity firms Leonard Green & Partners and CVC Capital Partners CVC.UL for $2.8 billion in cash, a price that shows a modest appetite for retail deals.
Under terms of the deal announced on Wednesday, the wholesale club's shareholders will get $51.25 a share. That is a premium of about 38 percent over the BJ's share price when Leonard Green disclosed a stake in the company a year ago.
Excluding the BJ's shares that Leonard Green already owns, the deal --- the largest retail leveraged buyout this year and the fifth-largest LBO overall -- is worth just under $2.37 billion, according to Thomson Reuters data.
Shares of BJ's, which put itself up for sale in February, were up 4.6 percent to $50.31 in midday trading.
BJ's operates 190 warehouse clubs in 15 U.S. states concentrated on the East Coast. It is much smaller than Costco Wholesale Corp (COST.O) and Wal-Mart Stores Inc's (WMT.N) Sam's Club. All three charge members annual fees to shop for everything from diapers to electronics and gasoline at discounted prices.
"Uncertainty that a deal would get done has been weighing on BJ's stock price," said Wall Street Strategies analyst Brian Sozzi, noting the shares were down 8.3 percent from late April.
The price is fair, and being out of the public eye for a few years should help BJ's do what it needs to do to be more efficient, said Walter Stackow of Manning & Napier, which sold off its BJ's shares in late May for about $50 each.
BJ's, which opened its doors in 1984, has been trying to sell more everyday groceries to lure shoppers to its stores more often. It announced plans in January to close five stores, restructure some operations and bring in fresh management.
Taking the company private makes sense, as BJ's may now try to expand nationally out of the public eye, said Janney Capital Markets analyst David Strasser.
BJ's shoppers traded down in both brands and package sizes in the latest quarter. Sales of items such as apparel, diapers and televisions fell.
DEAL IN THE WORKS FOR MONTHS
On June 17, Leonard Green & Partners said it had teamed up with CVC Capital Partners to bid for BJ's. The deal, approved unanimously by BJ's board, should close in the fourth quarter.
Leonard Green disclosed last summer that it had bought 9.5 percent of BJ's shares.
Leonard Green, which manages $9 billion, holds stakes in a number of other retailers, including Whole Foods Market (WFM.O) and luxury retailer Neiman Marcus Group NMRCUS.UL. Earlier this year it bought fabric and craft products chain Jo Ann Stores Inc and linked up with TPG Capital to buy apparel retailer J. Crew.
Leonard Green also teamed up with the family that runs 99 Cents Only Stores NDN.N to offer to take that chain private in March.
CVC's other U.S. investments have included industrial chemical manufacturer Univar, travel center owner Pilot Flying J, and swimming pool product company Leslie's Pool Supplies.
Still, the appetite for discount retail is selective.
"Big Lots not being able to sell itself was an indicator that expectations in the marketplace (for deals) were too high," said Stackow.
Big Lots Inc (BIG.N) took itself off the market last month after failing to attract high enough bids.
Under terms of the latest deal, BJ's would have to pay Leonard Green and CVC a total of $80 million if it walks away from the transaction, while the two buyout firms would pay BJ's $175 million if they ended the deal.
Morgan Stanley (MS.N) was BJ's financial adviser and Wilmer Cutler Pickering Hale and Dorr LLP served as its legal counsel. Potter Anderson & Corroon LLP served as legal counsel to BJ's independent board committee.
Deutsche Bank Securities Inc, Citigroup Global Markets Inc, Barclays Capital (BARC.L) and Jefferies & Co acted as financial advisers to CVC and Leonard Green and, along with General Electric Capital Corp GEA.N and Wells Fargo Capital Finance LLC, provided financing to both firms. Latham & Watkins LLP and Simpson Thacher & Bartlett LLP acted as CVC and Leonard Green's legal advisers.
(Reporting by Phil Wahba, Jessica Wohl and Megan Davies in New York, and Nivedita Bhattacharjee in Bangalore, editing by Dave Zimmerman and John Wallace)