Bed Bath & Beyond aims to raise $1 billion
Bed Bath & Beyond plans to offer convertible preferred shares and warrants that could raise just over $1 billion to provide the funding it needs to find some breathing space as it tries to turn things around. That would see it raise $225 million and up to another $800 million through warrants.
Bed Bath & Beyond plans to use the proceeds, along with $100 million it has left in its credit facilities, to repay outstanding debt after it recently defaulted on some of its loans. Notably, the defaults will be waived if the equity raise is completed. It will then need to repay missed interest payments out of its debt facilities.
The plan is to reborrow the debt that is being repaid, and this is what will be used to fund its plans to turn the business around.
Importantly, half of any sums raised from the conversion of warrants will go toward repaying debt.
What does this mean for investors?
Dilution. Bed Bath & Beyond is worth less than $400 million today and is trying to raise $1 billion, so it will be highly dilutive.
It is a raw deal for investors. Those that are partaking in the equity raise will have found themselves between a rock and a hard place. They had a choice of throwing good money after bad in the hope it will be enough to save the business to provide a glimmer of hope they could recoup losses over the long-term, or letting the company go bankrupt and see their investments and/or value of debt to be recovered collapse to virtually zero. That helps explain why the company has found willing parties to underwrite the deal.
Will it save Bed Bath & Beyond from bankruptcy?
The troubled homeware and baby retailer has been stuck in a cycle of decline for years and sales are falling, losses are swelling, and it is burning through large amounts of cash. The board, led by CEO Sue Gove who took over last year, has been exploring every possible option to save the business but appears to have run out of options.
The company warned that it would ‘likely file for bankruptcy protection’ if it fails to complete the transaction, suggesting this is a last-ditch attempt for survival.
Can Bed Bath & Beyond make a comeback?
There is a lot of uncertainty and questions over Bed Bath & Beyond’s future even if it raises the equity and secures some breathing space.
We have seen the board start to make headway when it comes to cutting costs, with the firm announcing it will close another 150 stores on top of those already put on the chopping block. It has made job cuts and lowered expenses, but there is a lot more work to do considering it burnt through over $300 million worth of cash in the last quarter alone.
The clock has been ticking for Bed Bath & Beyond to raise some cash but securing the money will only reset the clock. We have not seen much progress made on the other side of the coin in terms of demand and that is because the company needs to shake-up and rebuild inventory levels to get shoppers back through the doors. We are still in the early stages of any potential turnaround and the equity raise will only give it a certain amount of time to deliver. How much time it has will come down to how much it can stem the cash burn and improve sales.
The fact it is closing more stores to save money suggests Bed Bath & Beyond would emerge a much smaller version of itself should it survive, and that is in a world where it must compete with some of the biggest companies in the world. Plus, with the proceeds being used to repay debt that will then be reborrowed, it will remain ladened with debt. The balance sheet is already weak, debt is high, and its prospects remain poor.
With that in mind, and taking a more positive view, this could give it more time to minimise the damage and try to find another solution to its problems – like a takeover or asset sale. The buybuyBABY brand is still thought to hold significant value and there have been reports that some have been interested in buying the company as a whole, but the M&A route will have proven unappealing so far to Bed Bath & Beyond because it would have had to negotiate from a position of weakness. With fresh funding and a chance to shore-up the business, this could provide it a stronger negotiating position that could allow it to reap better rewards from any future deal.
In absence of that, Bed Bath & Beyond will need to deliver its turnaround plan – and quickly – if it raises the cash. There is always the risk that Bed Bath & Beyond goes bankrupt even if it raises this funding. This could be the last cash injection it is able to secure and once this money is gone, there is likely to be no lifelines left. That will put all eyes on its cashflow over the coming quarters and make generating cash a top priority.
Where next for BBBY stock?
Bed Bath & Beyond is about as risky an asset as you can get right now.
The initial reaction to the news sent Bed Bath & Beyond shares surging higher as investors hoped it was the key to the company’s survival, before plunging and giving back those gains today as the dilutive aspect of the offering and the uncertainty over its future became clearer.
It is worth noting that there will have been very different approaches toward Bed Bath & Beyond shares. There will be those that treat it like an investment, others have simply tried to capitalise on the volatility, and others have been trying to punish short sellers by creating a short squeeze.
Bed Bath & Beyond shares are down 43% today, although they have still gained ground since first warning that bankruptcy was a possibility in early 2023. As a highly volatile meme stock, the share price continues to move in ways that are detached from the fundamentals and technical analysis is not as useful in this scenario as usual.
Still, the technicals suggest that $3.50 is the immediate upside target that needs to be recaptured considering this has held as a ceiling for over two weeks, despite the temporary breach yesterday. The spike seen yesterday seemed to lose ground after climbing to the 200-day moving average, suggesting this is the next target.
On the downside, $3 has held as a firm floor for the stock over the past three sessions, supported by the 50-day moving average. A move below $2.50 could be on the cards below here.
Brokers, unsurprisingly, are bearish on the stock and rate it at Sell, with the average target price sat at just $1.64 – with some stating it is worth $0.
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