BJ's Wholesale May Face Hostile Bid - Analyst Blog

The shares of BJ's Wholesale Club Inc. (BJ), a leading warehouse club operator in the United States, rose 7.1% or $3.15 to $47.62 on Wednesday, when speculations of a hostile takeover bid spread across the market.

According to the New York Post, a private-equity firm, Leonard Green & Partners may make an attempt to acquire the company, if BJ's does not commence a sales auction, as planned. Earlier, the Post had reported that BJ's has been exploring strategic alternatives, including a possible sale and hired Morgan Stanley as an advisor in November.

Natick, Massachusetts based company, BJ's, which faces stiff competition from Costco Wholesale Corporation (COST) and Sam's Clubs, a division of Wal-Mart Stores Inc. (WMT), operates about 190 clubs in 15 states, and had market capitalization of approximately of $2.6 billion as of yesterday.

As a warehouse club, BJ's is uniquely positioned to drive traffic as it offers wider assortments of brands at compelling prices by carrying approximately 7,200 stock keeping units (SKUs) compared to 4,000–5,000 SKUs carried by its competitors, as well as offering its customers the choice of bulk or consumer-friendly package sizes.

The buzz that Leonard Green would be after BJ's, first riffed in July, when the firm took a 9.5% stake in the company. If the firm moves ahead with its plan, the acquisition of BJ's will be the latest in its string of buyouts. The firm recently offered $1.6 billion to acquire fabric and crafts chain, Jo-Ann Stores Inc. (JAS), and made a joint bid of $3 billion with TPG Capital for the apparel retailer J. Crew Group Inc. (JCG).

Currently, we prefer to be 'Neutral' on BJ's Wholesale. The Zacks #3 Rank, which translates into a short-term 'Hold' recommendation, correlates with our long-term view.