Cabela's-Bass Pro Deal: Fishing For A Discount?

(Bloomberg Gadfly) -- Cabela's Inc.'s takeover by Bass Pro Shops is turning into a fishing trip of nightmares.  

It has been 10 months since the outdoor-gear retailers sealed their deal, so there's only two months to go until October 3 -- the date the transaction can be terminated without financial penalty for either party if it hasn't yet closed. 

I last weighed in on the situation back in February, right around the time Cabela's plummeted to a fresh low on fears the merger could collapse. The deal hinges on Cabela's selling its banking arm, and the first buyer for that unit, Capital One Financial Corp., looked unlikely to get regulatory approval in time. I argued Cabela's would probably find another buyer for its banking unit.

Sure enough, Synovus Financial Corp. came to the rescue in April, agreeing to take on Cabela's roughly $1.2 billion in deposits. Cabela's shareholders partly paid for the privilege: At the time, the deal price was cut by about 6 percent, to $61.50 from $65.50. 

It should be a straight path to the finish line, cleared even wider by a green light from antitrust regulators in early July (after which shares popped as high as $60.75) and approval from Cabela's shareholders on July 11. 

But confidence is waning again. And once again, the culprit is uncertainty around the Synovus deal getting prompt approval from banking regulators.

This time, a little more anxiety is warranted.

Here's why: Since 2014, the Federal Reserve has taken a mean of 173 days, or a median of 143 days, to review similar banking mergers.  That doesn't leave much room for error -- there are just 167 days between Synovus's filing date of April 19 and Oct. 3.  

It's striking that Bass Pro declined to extend the deadline beyond Oct. 3 when it was negotiating April's changes to the merger agreement. That suggests it may plan on dropping its offer price after that date, or even (though this is less likely) walking away altogether.

Bass Pro has plenty of reasons to want to cut the deal price. Cabela's has struggled since the transaction was agreed:

Also, it's rather ominous that "on several occasions" since the deal was first agreed, Bass Pro has remarked it was disappointed with its target's performance, according to a proxy filing.

Cabela's shares slipped as much as 5.2 percent in afternoon trading on Thursday after poor second-quarter results enhanced concerns the deal may be on death's door. At $53.40, the stock is trading at a roughly 13 percent discount to its takeover price.

This spread is valid and arguably should widen, if only because it's such a complete unknown whether banking regulators will approve the Synovus transaction in the nick of time. If not, investors can hope for little more than a revised, much less generous, deal.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

1. Based on a sample of Interagency Bank Merger Act Applications.

2. In what's left of this period, there are potentially as few as four or five more meetings slated for the Fed's Board of Governors, assuming they follow their loose schedule of meeting "every other Monday". This number shrinks to potentially two or three meetings if you factor in the Department of Justice post-approval period that could be, at best, days or at its longest, days.

To contact the author of this story: Gillian Tan in New York at gtan129@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.