CHICAGO Cost Plus Inc CPWM.O rejected a takeover offer from fellow home furnishings retailer Pier 1 Imports Inc (PIR.N) on Monday, saying the bid was "ill-timed."
"Your proposal to combine our operations is not attractive from either a financial or a strategic perspective," Cost Plus said in a letter to Pier 1.
"It is both distracting and ill-timed, given the difficult retail environment and the progress we have made investing in and improving our business."
Both companies' shares were higher Monday morning, with Pier 1 up almost 6 percent to $5.87 on the New York Stock Exchange, and Cost Plus up 3 percent to $3.46 on the Nasdaq.
On June 9, Pier 1 offered to buy Cost Plus in a stock deal valued at the time at $88.4 million.
Pier 1 offered 0.6 shares of its common stock for each share of Cost Plus, which had 22.1 million shares outstanding as of April 14. Based on the stocks' June 6 closing prices, the offer valued Cost Plus at about $4 per share, which at the time was a premium of 31 percent. Cost Plus shares closed on Friday at $3.34.
Cost Plus' rejection of the offer was not unexpected, given the offer price, Sanford C Bernstein analyst Colin McGranahan wrote in a research note on Monday. He said any attempt by Pier 1 to raise its offer would be "highly imprudent."
"A Cost Plus acquisition runs the risk of distracting Pier 1's management team and derailing both retailers' nascent turnarounds," McGranahan wrote. "Given the negative response to the initial offer, we think any increased certainty that the deal will not be consummated would be a positive for the stock, and we expect support for the shares today."
Pier 1 could not be reached for comment on the rejection.
Some analysts gave the deal a thumbs-down, saying acquiring Cost Plus, which reported a quarterly loss last month, would distract Pier 1, which is in the process of turning its business around.
Cost Plus, which also sells exotic food and beverages at its Cost Plus World Market stores, said it had significant liquidity to pursue its business objectives.
(Reporting by Erin Zureick; additional reporting by Nicole Maestri; editing by Maureen Bavdek and John Wallace)