BJ's Wholesale Club Down Despite Potential For Sharply Higher Bid

BJ's Wholesale Club, Inc.

shares are down sharply today, down more than 3% despite a

that says BJ's Wholesale could fetch around $53 per share in a going private offer.

it was disclosed that Leonard Green and CVC Capital Partners had offered to buy the company, but did not disclose a price. According to data from Bloomberg, BJ's Wholesale could potentially be worth $53-$57 per share, based on valuations of its competitors, such as Costco

and Sam's Club

, and the price Leonard Green agreed to pay for 99 Cents Only Stores

. The Westborough, Massachusetts-based company has more cash than debt and the lowest operating margins in the industry, which is attracting private-equity firms such as Leonard Green. Joe Feldman, an analyst for Telsey Advisory Group LLC said that BJ's could be suited for a leveraged buyout, as the company has minimal debt. "It's kind of suited to an LBO. You could lever this thing up,” Feldman said to Bloomberg. DealReporter reported last week that a bid for the company will not be more than $55 per share, and may not reach $52, which is putting pressure on shares today. Conversely, Goldman Sachs recently put a $60

indicating there may be additional upside if BJ's rejects the first offer. Leonard Green and CVC are attracted to the business because of the aforementioned reasons, but also the membership model. Shoppers pay a membership fee, approximately $50 per year for the right to shop there. The membership fee could be raised slightly every year or few years, earnings additional revenue for the company at extremely high margins. Traders should continue to watch the options markets, particularly strikes in the $50 range, as it looks like a bid of above $50, but below $55 may be in the cards for now.