Bass Pro Shops Acquisition Of Cabela’s To Move Forward… At A Lower Price

Bass Pro Shops Acquisition Of Cabela’s To Move Forward… At A Lower Price
By TheZachMorrisExperience (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Article by Vintage Value Investing

A quick recap of the facts

What seemed at first a fairly easy deal from a regulatory standpoint (antitrustwise at least) became more difficult when it transpired that a party of the transaction, Capital One, would not obtain timely approval to acquire The World’s Foremost Bank (Cabela’s credit card operation).

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This was important because acquiring deposits requires a license and all sort of complicated regulatory compliance, which Bass Pro did not want to take on. Hence, the presence of Capital One in the deal.

The reason why timely approval was necessary is because the end date (the date at which parties could terminate the agreement) was October 3rd. So when it became obvious that Capital One could not do this (regulators can’t seem to trust Capital One’s anti money laundering practices), the deal participants had to scramble for a solution.

Synovus steps in

A little known US financial institution, Synovus will take on the deposits that are putting regulators off in the deal with Capital One. Capital One will still be purchasing the credit cards portfolio. However, Synovus’ help is not entirely free and the company is getting no less than $75m for its contribution (it’s acquiring the bank’s assets at a discount and reselling the cards portfolio at a US$5m premium to Capital One). Those US$75m, and more, are directly deducted from Cabela’s shareholders pockets, chopping the offer by US$4, from US$65.50/share to US$61,50/share. While no reason were given for the price reduction, it’s clear to me that with the end date approaching and the possibility that Bass Pro terminates, Cabela’s was in a weaker position and had to cave in.

The merger arbitrage play

I’m obviously not thrilled by the prospect of losing the arbitrage premium on this. Based on my purchase price, I’ll just break even. However, this deal is coming back from a long way so I’ll take the settlement. Mind you, it’s not over as it still has to be approved by antitrust regulators and it’s now a party of four, which makes it even more complex.

With some luck (or lack of bad luck), we’ll be able to put this one behind by end of the summer. Fellow arbitrageurs, even those who will end up with a loss, should not be discouraged. It’s all about the overall picture, and not every deal will be a smooth ride. Besides, it’s always possible to make some money back by increasing its position in the transaction once the dust settles (all approvals are obtained and the closing becomes a question of time only).

Other portfolio updates

  • Increased position in SWC as CFIUS approval obtained and shareholder votes near (should not be an issue)
  • Increased position in SYUT, also with shareholder vote at the end of the month
  • Initiated position in Syngenta at US$89/share, which is the target of a tender by ChemChina. The deal has been dragging on forever with regulatory approval but it’s now very close to the finish line (all approvals obtained besides India). Target closing end of May/early June at US$94/share including special dividend at closing.


Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…
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