Bed Bath & Beyond, Part 2
The Meme Lord's Pump and Dump
This post is an update to my July 7 post regarding Bed Bath & Beyond. In that first post I encouraged readers to follow this story, particularly those of you interested in corporate finance and business strategy. I said this story would be interesting, but little did I know how interesting. And it ain’t over yet!
Setting the stage. Back in early July, I published a lengthy note about Bed Bath & Beyond, which described the sad and prolonged decline of this once dominant home furnishings retailer. At the time of my note, Bed Bath & Beyond had recently reported a big drop in quarterly sales and the firing of its CEO, which triggered a 25% one-day fall in the share price. The Company was burning cash at a rapid pace and had only $100 million left in the till, having blown through over $1 billion of cash in the prior twelve months. BBBY’s share price had fallen below $5, off 70% year to date and down 90% from its all-time high. The Company’s bonds were trading at 40 cents on the dollar, signaling market expectations of a likely default, and the Company announced the hiring of restructuring advisors to help them work their way out of this mess.
Suffice it to say that things did not look good for Bed Bath & Beyond or its shareholders. Not good at all.
Enter Ryan Cohen. There was one important development at Bed Bath & Beyond which I did not discuss in my July post, which was focused more on the Company’s operating performance and financial position than on developments in its share register. Back in March, the fortunes of Bed Bath & Beyond looked like they might take a turn for the better with the arrival on the scene of a potential corporate white knight in the form of Ryan Cohen, the billionaire founder of online pet goods supplier Chewy, aka ‘Meme Lord’ or ‘Papa Cohen’ of GameStop fame. As he had done with GME, Cohen purchased on the stock market a sub-10% ownership stake in BBBY. His investment was greeted enthusiastically by investors, including the meme stock crowd, who sensed that fundamental change might finally be in the offing at Bed Bath & Beyond.
Cohen got quickly to work, lobbying Bed Bath & Beyond to reorient its strategy, rejuvenate its operations and seek new financing. Within a few weeks the Company had agreed to appoint to its board three new directors selected by Cohen and set about reviewing yet again the Company’s strategic and financial alternatives, including a possible sale of the fast growing ‘buybuy Baby’ business. In response, the market price of BBBY shares rallied strongly and by the end of March were trading at $27, up 75% from the price paid by Cohen ($15) and valuing the Company’s equity at $2.2 billion.
The stock market euphoria at BBBY did not last for long, however. By early July, with little but bad news coming out of the Company, the shares were trading under $5, valuing the Company’s equity at under $400 million, a loss of $1.8 billion in market value from its Papa Cohen peak.
The Reddit Rally. Just a few weeks later however, in early August, the meme stock crowd inexplicably woke up and decided once again to pile into BBBY, driving the share price up by a factor of 4x in just two weeks. This happened at a time when BBBY’s bond prices had fallen to 25 cents on the dollar, a clear vote of no-confidence in the Company’s future solvency seemingly inconsistent with a quadrupling of the share price. Exactly why this happened is not entirely clear, but for whatever reason the Reddit crowd jumped back into BBBY on renewed speculation that Papa Cohen was up to something big.
Which, it turns out, he certainly was.
Exit the Meme Lord. Unfortunately, however, it now appears that what Papa Cohen was up to in mid-August was preparing to dump his entire stake in BBBY, perhaps in light of rumors that BBBY suppliers were starting to halt product shipments. And so over a period of just two days (August 16-17), Cohen sold his entire stake into the Reddit rally, as the shares moved up to an intra-day peak of $27 (up 70%) leaving meme stock punters holding more shares and nursing big losses.
When news of the Cohen sales become public (on August 18th), BBBY’s share price went into free fall and by last night’s close had (again) lost over two-thirds of their value, trading at under $9 per share. Meme stock investors had once again gotten out ahead of themselves, as they are wont to do, but this time the pain was inflicted by the very person who got them into the BBBY trade in the first place, the Meme Lord.
Light at the End of the Tunnel? Just as I was about to hit ‘publish’ on this note earlier this morning, I noticed a new WSJ story captioned “Bed Bath & Beyond Clinches Loan Deal”. This of course got my attention, which was further peaked when I noticed BBBY up big in pre-market trading. And at one point today, the BBBY share price was actually up 30%, to $11.50, apparently on the back of this one story about a “clinched” loan deal, which of course sounds like very good news for Bed Bath & Beyond.
Alas, further investigation has revealed little of real substance to this story and a rather misleading headline, which makes one wonder if the BBBY shareholders bothered even to read the article. The WSJ article says little more than that BBBY and its financial advisor JP Morgan have reportedly found a lender willing to lead a new debt financing, which is still to be arranged. Neither JPM nor the Company would comment for the record, however, and as of now BBBY has not updated any of its public disclosures on this matter. All of which suggests to me that the Company and its bankers may still have a ways to go before any new money changes hands.
Only time will tell how this all plays out. A new loan deal might well come together and this might turn out to be very good news for BBBY and its shareholders. Or the terms of any new financing might prove to be underwhelming and simply delay for some time the Company’s inevitable financial restructuring, with more pain in store for BBBY shareholders down the road. In which case today’s jump in the stock price might prove to be just another dead cat bounce.
Call me skeptical, but given the recent history at Bed Bath & Beyond, I am betting that this particular light at the end of the tunnel is another oncoming train. Which the Meme Lord will have dodged, but only by pulling his followers blindly onto the tracks.
Links:
Bed Bath & Beyond: From Buy Buy to Bye Bye, Banking & Beyond, July 7, 2022
BBBY’s Stock Plunge Narrows Options for Cash Infusion, WSJ, August 22, 2022
BBBY Shares Tank on Reports that Suppliers have Halted Product Shipments, CNN, August 22, 2022
BBBY’s Problems Escalated by Ryan Cohen’s Sale, WSJ, August 19, 2022
BBBY Shares Surge Despite Liquidity Concerns, WSJ, August 16, 2022
BBBY Fiscal 2022 Annual Report, BBBY Website
BBBY Adds New Directors in Deal with Activist Ryan Cohen, WSJ, March 25, 2022
BBBY Share Price Soars 60% on Ryan Cohen Stake, WSJ, March 7, 2022
GME’s Power Player: How Outsider Ryan Cohen Wrested Control, WSJ, August 12, 2021