I'd Like To Solve The Puzzle:
A 60-Page Report detailing the Marriage of Carl Icahn and Bed Bath & Beyond,
π WHAT: Leveraged Buy-Out, Spin-off BABY
π HOW: Bond Exchange, The Team & Kastin
π² WHY: Merger with WestPoint and Newell
π« WHEN: Filings, Earnings, Bond Payment
π WHAT: Leveraged Buy-Out, Spin-off BABY
On Jan 13th, an input into Pitchbook indicates a rumored leveraged buy-out was negotiated. The same day, certain events of default were triggered with the JPM loan. The ABL mentions a change in control is considered an event of default.
The suggestion to perform a sale of the company was first supported by Cohen in his March letter. Bloomberg confirms the company is working with advisors mentioned in Pitchbook. Kirkland & Ellis was hired by the company in August. Lazard is a world leading asset management firm.
Carl Icahn and Bed Bath & Beyond have several connections to AlixPartners. Carol Flaton is a Bed Bath & Beyond board member. David Willets is CEO of Icahn Enterprises. Holly Etlin is interim CFO at Bed Bath & Beyond. Ronak Tamra joined as director at AlixPartners.
The suggestion to spin-off or sell buybuy Baby was first supported by Cohen in his March letter. Bed Bath & Beyond completed its offering for Series A Convertible Preferred Stock and Warrant securities, detailing Dividends, New Subsidiary, and Successor Shares.
Hudson Bay is reportedly involved with Bed Bath & Beyond. A Pitchbook search of Hudson Bay shows extensive experience with PIPE, IPO, and other transactions. Carl Icahn has extensive history advocating for asset spin-off or sales, including; Ebay, BEA Systems, and Tappan.
A photo of Carl Icahn and Ryan Cohen is published October 17th.
October 18th, Bed Bath & Beyond announced an offering to exchange its notes. A payout analysis of the notes shows there isn't enough money to distribute to all holders. We can conclude holders are incentivized to accept the exchange.
Bonds were downgraded and prices collapsed after announcement. Then, on Nov 2nd, Bloomberg reports 30% of 2024 holders wanted better terms. The company proceeded with four extensions rejecting holders requested for sweetened terms. The exchange was ultimately terminated Jan 5th.
On Nov 9th and 14th, two exchange agreements converted notes to equity, totaling $154.5 million debt serviced for 14.5m shares at $12.50 and $10.51 cost basis. A mathematical study on the debt remaining. Perella Weinberg advised 2024 holders in the exchange.
Jake Freeman proposed a competing exchange, convertible bond issuance, and slapped a $350m valuation on Baby while calling first lien rights. He opposed a sale of the company and spin-off of assets. Some details suggest Jake Freeman might be a fraud, a cleaning project for later.
Cohen hired Icahn solicitor Harkins Kovler for his successful proxy fight with Bed Bath & Beyond. His cooperation agreement allows him three directors and the creation of a Strategy Committee focused on exploring alternatives to unlock value from Baby. CEO Mark Tritton leaves.
Ben Rosenzweig, Marjorie Bowen, and Shelly C. Lombard were installed on the Board. Ben and Shelly have experience advising clients on multiple M&A transactions. Ben resigned Dec 20th. Marjorie has extensive experience with companies undergoing transactions. She resigned Feb 11th.
On Dec 12th, David Kastin was hired as Chief Legal Officer. He managed an IPO/going public transaction of Clever Leaves. He was point person in the sale of The Vitamin Shoppe. He was point person with the buy-out of Sequa. He was point person in the $6.6b buy-out of Toys "R" Us.
π² WHY: Merger with WestPoint and Newell
Icahn Enterprises purchased WestPoint Home in a similar debt transaction. WestPoint is a home fashion company with some brands selling at Bed Bath & Beyond. WestPoint filed a $600,000 civil suit against the company on Feb 2nd.
Icahn Enterprises entered a cooperation agreement with Newell Brands in 2018 with 6.9% ownership. Brett Icahn sits on the Board. Several Newell brands are sold at Bed Bath & Beyond.
On Jan 23, Newell announced Project Phoenix, a savings initiative targeting $250m by leveraging scale to reduce complexity, streamline its operating model, and drive operational efficiencies. On Feb 10, Newell mentions a collaborative, win-win partnership with Bed Bath & Beyond.
Bed Bath & Beyond continues to struggle selling legacy inventory from the criticized private label decisions by then CEO Mark Tritton. Bed Bath announced an update in August with plans to reduce SG&A and CapEx expenses, achieving cash flow neutrality by end of FY22, Feb 25th.
A mathematical study of the bonds shows an acquirer might own more than $150 million in notes. A fair value study of Baby per Cohen suggests the asset may be worth $3b. If Bed Bath & Beyond can achieve profitability, relevant precedents suggest fair value may be $5b - $30b+.
π« WHEN: Filings, Earnings, Bond Payment
In early November, Carl Icahn appeared in CNBC and Forbes interviews and mentioned a long stock he can't talk about because earnings aren't out. On Nov 21st, Icahn Enterprises announced a $400m ATM offering to fund potential acquisitions.
Bed Bath & Beyond announced earnings on Jan 10th. The following three days, the stock price rose 300% from to $5.87. Pitchbook indicates a leveraged buy-out was negotiated Jan 13th. The company triggered an event of default on their ABL on Jan 13th.
On Feb 14, Icahn Enterprises filed 13F stating Confidential Treatment Requested, omitting one or more holdings. IEP reported Q4 earnings on Feb 24th. Bed Bath & Beyond 2022 fiscal year concluded Feb 25th. The company announced Special Record Date for bond payment Feb 27th.
Calendar: between October 2022 and February 2023 involving; Bed Bath & Beyond, Icahn Enterprises, and Newell.
If a leveraged buy-out has occurred, it's possible we will learn an update of the debt restructuring at the company's Special Record Date, after market hours today.
Extra: I've included some of my favorite quotes from the documentary, Icahn: The Relentless Billionaire.
Disclaimer: I am an Architect and have no experience in corporate finance. This is not financial advice. You are responsible for your own investments.
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This thread covers the company's default on Jan 13th with context from their credit agreements with JP Morgan, including a Jan 13th Pitchbook input of a leveraged buy-out of Bed Bath & Beyond.
April 5th, 2023: "Why Would Perella Weinberg Advise Bondholders to Exchange for Equity?"
This thread covers the company's debt-to-equity exchange deals in Nov2022, including a bankruptcy waterfall analysis and relevant experience from Perella Weinberg.
April 6th, 2023: "Why Didn't Bondholders Accept the Debt Exchange?"
This thread covers the company's cancelled debt exchange offering, questioning bondholders incentives to hold Unsecured Notes over Second/Third Lien Notes during Going-Concern operations.
WSJ reporter @GunjanJS writes, "When #BBBY filed for bankruptcy, it had a gaping hole in its financials: assets of $4.4b and liabilities of $5.2b," but are these numbers currently accurate?
This post looks into two strategies which create net-positive value for shareholders.
To begin, these figures were reported in FY22 Q3 earnings for the period ending Nov 26th. Much has changed in the six+ months since.
These figures will not include $360m in equity capital from the Feb securities offering, nor the assuredly negative cash flow from operations.
The first category to address is the company's net operating losses (NOLs).
From bankruptcy docket #10 filed on Apr 23rd, "As of the end of February 25, 2023, the Debtors estimate they had NOLs in the amount of approximately $1.6 billion..."
From the introduction to the book βKing Icahnβ by Mark Stevens,
βIcahn had built a position in a company, then traded over-the-counter, to the point that he owned a substantial block of the outstanding stock.β #BBBY
βConvinced that he had made a forceful case for reconfiguring the business, Icahn paced like an expectant father, waiting for what he hoped would be a favorable response to his plan.β
βInvestment banker: βYou know, Carl, they don't like you at all.ββ
ββI don't want to threaten you but we are going to begin by smearing your name. We've got three PR firms. We've got the best three PR firms in New York. Starting tomorrow, we are going to start smearing your name...β
Debt is the New Equity: A look into Sponsored Buyouts in Chapter 11 and recent events surrounding Bed Bath & Beyond including volume in the company's bonds and the appointment of Holly Etlin to Chief Restructuring Officer. #BBBY
This six page Kirkland and Ellis paper (2009) details Sponsored Buyouts and the Plan Sponsor Transaction through Chapter 11 bankruptcy proceedings. The following quotes will summarize the paper, but it's worth a full read.
On Mar 30th, Bed Bath files $300m ATM offering to be completed Apr 26th or face bankruptcy. The funds would close the ABL w JP Morgan 3 years before maturity. Any acquisition requires JPM approval, except in chapter 11 proceedings. #BBBY
The $300m ATM offering Mar 30th states,
"Upon filing our annual report Form 10-K, which is due by April 26th, 2023, we will lose S-3 eligibility and therefore we expect all sales made pursuant to the sales agreement will cease by April 26th, 2023...
β¦If we do not receive the proceeds from the offering of securities covered by this prospectus supplement, we expect that we will likely file for bankruptcy protection."
5 Days to Bankruptcy: Cohen argues a multi-billion $$ valuation of BABY as the Ultimate Destination for Babies. He sells his Bed Bath position in Aug at the start of M&A negotiations. His letter suggests his willingness to hold the board accountable. #BBBY
"Given that BABY is estimated to reach $1.5 billion in sales in Fiscal Year 2023 with a double-digit growth profile and at least 50% digital penetration, we believe it is likely much more valuable than the Company's entire market capitalization today."
($1.6b at time of writing)
"We believe under the right circumstances, BABY could be valued on a revenue multiple, like other ecommerce-focused retailers, and justify a valuation of several billion dollars."
The math presented in the following tweet assumes 550m shares outstanding at Bed Bath.