Wal-Mart Took a Shot at BJ's, Missed (WMT, BJ, COST)

When your business hasn’t shown much sign of growth for several years running, maybe it’s time to change strategy. Wal-Mart Stores Inc. (NYSE: WMT) has been trying to grow its business organically for about three or four years now, without much success. The company recently closed an acquisition of a controlling stake in South Africa’s Massmart. But Walmart appears to have missed on a bigger deal.

The New York Post reports this morning that Walmart made an offer of more than $55/share, or $3 billion total, for BJ’s Wholesale Club Inc. (NYSE: BJ) that was rejected.  BJ’s eventually accepted a $2.8 billion offer from two private equity firms, Leonard Green & Partners and CVC Capital Partners.

BJ’s filed a Schedule 14A with the SEC last week in which it detailed the long and winding road to its acquisition by the private equity firms.  The road to the private equity acquisition began on July 1, 2010. By February 2011, BJ’s board had decided to shop itself around and issued a press release indicating that the company wanted to “explore strategic alternatives, including a possible sale of the Company.”

In March, BJ’s board reviewed a list of possible strategic buyers and determined that none “should be solicited in view of the low likelihood that any of them would be interested in pursuing an acquisition” of BJ’s. On April 8th, a firm identified in the file only as “Party A” indicated an interest in acquiring BJ’s for $55-$60/share. According to the Post, Party A is Walmart, although neither Walmart nor BJ’s will confirm this.

The potential deal apparently failed because “The President of Party A stated that Party A was not prepared to agree to significant divestitures if necessary to achieve antitrust clearance for a combination of the Company and Party A.” In BJ’s view, a publicly announced merger agreement that failed for antitrust reasons put BJ’s future business at risk. By the end of April, BJ’s had notified Party A that no agreement was possible. The filing does not mention Party A again, and the private equity deal was announced on June 29th.

Was Party A/Walmart serious or did the retail giant just want a peek under BJ’s kimono? Could a deal have passed Justice Department scrutiny? We’ll never know for sure, but there are good reasons for Walmart to want to acquire BJ’s.

The most important of these is BJ’s presence in and around the large population centers of the northeast US. The company owns 190 stores from Maine to Virginia. Walmart could have doubled its club-store presence in this region if it had been able to acquire BJ’s.

Walmart has 65 supercenters, 30 discount stores, and 16 Sam’s Club stores in New York, while BJ’s has 38. BJ’s club concept competes with Sam’s Club and Costco Wholesale Corp. (NASDAQ: COST), which owns about 425 stores in the US. The Sam’s Club stores have been a solid performer for Walmart and the addition of the BJ’s locations would have been a solid boost to Walmarts revenues and profits.

But, at least for now, it is not to be. Maybe when the private equity firms are ready to flip the BJ’s stores, Walmart can get back in line.

Paul Ausick