Are Cabela’s Shareholders Getting Enough out of the Acquisition?

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Cabela’s Inc. (NYSE: CAB) shares made a handy gain on Monday after it was announced that Bass Pro Shops would be acquiring the company. However, it didn’t stop there. Bass Pro Shops went on to announce that it had also entered into a multiyear credit card agreement with Capital One Financial Corp. (NYSE: COF).

Under the terms of the Cabela’s acquisition, Bass Pro Shops will pay $65.50 per share, representing a total valuation of about $5.5 billion. This is a premium of about 19% from Friday’s close at $54.93.

Compared to the 50-day ($50.75) and 200-day ($48.56) moving averages, the transaction represented premiums of 29% and 35%, respectively.

Following the closing of the transaction, Bass Pro Shops intends to celebrate and grow the Cabela’s brand and will build on qualities that respective customers love most about Cabela’s and Bass Pro Shops. In addition, Bass Pro Shops recognizes the strength of Cabela’s CLUB Loyalty program and intends to honor Cabela’s customer rewards, and it sees potential over time to expand the program in the combined company.

Immediately prior to closing, Capital One will acquire certain assets and assume certain liabilities of Cabela’s World’s Foremost Bank. The cash proceeds from this transaction will remain with Cabela’s until it is acquired by Bass Pro Shops.

Also Capital One will originate and service the Cabela’s CLUB, Cabela’s co-branded credit card, and Bass Pro Shops will maintain a seamless integration between the credit card program and the combined companies’ retail operations and deep customer relationships.

Tommy Millner, Cabela’s CEO, commented:

Having undertaken a thorough strategic review, during which we assessed a wide variety of options to maximize value, the Board unanimously concluded that this combination with Bass Pro Shops is the best path forward for Cabela’s, its shareholders, outfitters and customers. In addition to providing significant immediate value to our shareholders, this partnership provides a unique platform from which our brand will be extremely well positioned to continue to serve outdoor enthusiasts worldwide for generations to come.

The acquisition is expected to close in the first half of 2017. The Cabela’s board of directors unanimously approved the transaction, but it is still subject to approval by Cabela’s shareholders and regulatory approval.

Shares of Cabela’s closed Friday up about 2.6% at $54.93, with a consensus analyst price target of $51.80 and a 52-week trading range of $33.03 to $55.07. Following the announcement, the stock was up over 15% at $63.39 in early trading indications Monday.

Shares of Capital One closed at $71.83 most recently, with a consensus price target of $78.62 and a 52-week range of $58.03 to $81.62. Following the announcement, the stock was only up marginally at $72.12 in early trading indications.