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Cost Plus’ Board Rejects Pier 1’s Unsolicited Offer

June 16, 2008


There seem to be two prevailing ideas about the proposed buyout.  Pier 1 (1,117 stores) is too early in its recovery to convince shareholders of Pier 1 and the board of Cost Plus (296 stores) that the turnaround is finished and reproducible.

MarketWatch:

A purchase of Cost Plus “runs the risk of distracting Pier 1’s management team and derailing both retailers’ nascent turnarounds,” said Sanford C. Bernstein & Co. analyst Colin McGranahan

Reuters reported

“Your proposal to combine our operations is not attractive from either a financial or a strategic perspective,” Cost Plus said in a letter to Pier 1.

By strategic perspective, will a focus on “inexpensive impulse buys” work long term and is it a good strategy for Cost Plus?

Mitchell Schnurman at Star Telegram in Fort Worth writes :  

"With no cash involved, the low-ball bid is almost entirely a bet on Pier 1's management team, led by CEO Alex Smith, who arrived from T.J. Maxx just 16 months ago. Under Smith, Pier 1 has cut annual costs by $160 million, primarily by closing stores and slashing payroll and marketing. At the same time, Pier 1 reworked the merchandise mix and refocused on inexpensive impulse buys."

RTTNews reports:

"Pier 1 reported a profit for the fourth quarter of $13.74 million, or $0.16 per share, compared to net loss of $58.70 million, or $0.67 per share in the year-ago period."

Then there’s the price.  Shirleen Dorman at the WSJ reported

…some analysts and Cost Plus shareholders (said) it would take more than twice Pier 1's initial bid to win support for an acquisition.

In May, Cost Plus reported a net loss from continuing operations of $22.0 million, versus a loss of $10.4 million, in the prior-year period.

“Cost reported two positive trends in the most recent quarter. Same-store sales ticked up after a sharp decline the year before, and customer traffic increased for the first time since 2003.”

So we are left with questions.  Does the Pier 1 strategy work for Cost Plus? Is the price adequate?  And for Pier 1 is this the time to buy Cost Plus or should we wait another quarter?  Will it cost more to buy Cost Plus?  Probably.

Thoughts?  Email me at Landfair3554@comcast.net

Posted by Mike Landfair on June 16, 2008 | Comments (0)