Loving the BJ's Wholesale Club Saga

| About: BJ's Wholesale (BJ)

By Brian Sozzi

BJ's Wholesale Club (NYSE:BJ) has sure dragged its feet in the process to sell, unsurprising since we always sensed a reluctance to do a deal on the part of management. Note that BJ's executive management holds very little of the stock (CEO Laura Sen holds a measly 0.4% of the outstanding), perhaps explaining the slow movement on the deal front (want to keep their jobs...). However, when a company has an activist shareholder (Leonard Green) who boasts 9.5% of the stock breathing down its throat, rest assured that clarity of mind begins to surface. What has arisen in the minds of management is the obligation to maximize shareholder value, putting their interests secondary to the greater good of the other owners, hence an auction process that began earlier this year.

This morning, we learned that Apollo may have made a bid of $3.0 billion or $56.00 per share for BJ's, valuing the company at a 12% premium to the closing price yesterday. We think this is a rather fair price as it touches the outer boundaries of aggressive growth assumptions we conducted in a hypothetical modeling exercise (actually we could make a case for $57.00 per share). Leonard Green is unlikely to take its alleged low ball bid from last year higher seeing as it's digesting a significant round of retail sector transactions.

On July 1, 2010, it was made public through a Schedule 13D filing that Leonard Green amassed a 9.5% stake in BJ's. As evidenced by the table below, Leonard Green will record a nice payday for its investors if it sits back and doesn't ruffle the interest expressed by Apollo.

(Click charts to expand)

Click to enlarge