BBX Capital's Privatization Of Bluegreen Vacations Has Been Impeded By Bass Pro

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About: BBX Capital Corporation (BBX), BXG
by: Special Situation Investor
Summary

BBX Capital intends to privatize its main asset, Bluegreen Vacations.

Bass Pro, one of the main marketing channels of Bluegreen, has raised concerns about breaches in its commission payments agreement.

Due to these problems, BBX is currently re-evaluating the merger.

  • Merger consideration stands at: $16 in cash per BXG share
  • Current price: $15.44
  • Spread: 4%

Vacations ownership company Bluegreen Vacations (BXG) is getting privatized by its majority owner BBX Capital Corp. (BBX) (which owns 90%). The deal requires neither the board’s nor shareholders’ approval, and until recently, has traded with a negative spread (I didn’t find any explanation for this). Despite that, one of the main marketing partners of Bluegreen, Bass Pro, has announced that it is having some issues with the commissions payments from Bluegreen, and in case the issues do not get resolved within a 30-day period, their exclusive partnership might be ended.

A significant portion of BXG sales is generated from the marketing channels. For example, 16% of the total VOI sales goes through Bass Pro channels (kiosks at retail sports, catalogs, website, etc.). As a result, BBX has stated that it is now reevaluating the deal and might choose to not proceed with it at all. After these announcements, the spread has widened to 10%, but it has now (without any further announcements) narrowed to 4%. The downside to pre-announcement of the privatization is 13%. However, I think that if BBX decides to cancel this offer, it is just going to come back with a smaller one.

Bass Pro claims that Bluegreen has made numerous breaches in its sales commission payment, and argues that “sales commissions should not have been adjusted for certain purchaser defaults, breaches regarding the calculation of commissions and other amounts payable under the Agreement and other related agreements including reimbursements paid to the Company, as well as matters regarding the operations at Bluegreen/Big Cedar.” Bass Pro has raised this same issue for the first time in 2017. Then, BXG claimed that the chargebacks for the customer defaults were actually appropriate, but in order to keep the good relationship with their marketing channel, it paid $4.8 million to Bass Pro for the downward payment adjustments made from 2008 to 2017. Interestingly though, in the recent letter, Bass Pro still mentions that some breach from the 2014 also has not yet been fixed by its partner.

So, it is unknown what kind of chargeback sum is on the table now, but as BBX has decided to rethink the privatization, it should be considerable. However, if the last repayment for 10 years was only $4.8 million, then it could be significantly smaller this time and shouldn’t be a problem for a company with $273 million cash on hand. According to the announcement, it looks like the companies are “optimistic that a resolution of the outstanding issues would be achieved”. Given that the share price has risen now close to the offer price, it seems that the market also thinks that the risk of failing is not that strong. Moreover, taking into account that BXG has already agreed to make a repayment once, it seems that the whole situation should turn out positively.

Nonetheless, if Bluegreen and Bass Pro don’t manage to solve the issues, BBX might cancel the deal and come back with a lower offer stating that the situation of the target company has changed.

Some more background

  • BBX - Diversified holding company whose main asset is interest in Bluegreen.

  • Bass Pro - Retailer of fishing, hunting, boating and outdoor sporting goods.

  • BXG - Vacations ownership company that markets and sells VOIs (vacation ownership interests). It also manages 45 Club Resorts and 24 Club Associate Resorts. BXG and Bass Pro also together own (51% and 49% respectively) Bluegreen/Big Cedar Vacations, which also markets and sells VOIs at premier wilderness-themed hotels.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.