Bass Pro Shops said on Monday it will acquire Cabela's Inc (CAB.N) for $5.5 billion, combining two meccas for outdoor enthusiasts, even as the deal may face antitrust scrutiny given that the hunting and fishing retailers overlap in several U.S. states.
The deal, first reported by Reuters, will combine Cabela's 85 stores, which have a stronger U.S. Northwest presence, with Bass Pro's roughly 100 stores that are concentrated in the U.S. Southeast.
Their overlap in Texas, Missouri and Kansas will likely raise antitrust concerns.
"Both Cabela's and Bass Pro Shops used promotions to drive store traffic and market share, especially in contested geographic regions. As a combined entity, we see potential for a more rational promotional environment to emerge, benefiting all industry participants, "D. A. Davidson & Co said in a research note.
Cabela's had said it would explore a sale last December after pressure from activist hedge fund Elliott Management Corp, which said the shares were undervalued.
Cabela's shares ended up 15 percent at $63.18 on the New York Stock Exchange, close to the $65.50 per share in cash that the deal with Bass Pro values the company.
Elliott now stands to make a profit of $419.2 million, nearly double what it paid to buy an 11.1 percent stake in the company, according to regulatory filings.
Sydney, Nebraska-based Cabela's and Springfield, Missouri-based Bass Pro have been serving outdoor enthusiasts since their respective foundings in 1961 and 1971.
As the broader industry has struggled to compete with internet retailers such as Amazon.com Inc (AMZN.O), Bass Pro and Cabela's have been targeting customers seeking a one-stop shop for entertainment, expert advice and shopping.
Cabela's has grappled with declining sales of apparel and footwear and has reported same-store sales growth in only one quarter in more than three years. Still, the company maintains a loyal following, with many customers willing to drive miles to shop at stores, as well as dine at its restaurants and visit its shooting ranges.
The companies have at times also benefited from their significant hunting-gun businesses, but the industry has seen steep swings in sales amid uncertainty around gun law changes.
Both companies are closely associated with their founders, Johnny Morris at Bass Pro and Dick, Mary and Jim Cabela at Cabela's. Dick Cabela died in 2014 and was succeeded by his brother Jim as chairman of Cabela's. Johnny Morris, who still owns a majority of Bass Pro, will be chief executive of the combined company.
Cabela's also agreed to sell its credit card business called "World's Foremost Bank" to Capital One Financial Corp (COF.N), which will forge a 10-year partnership with Bass Pro to issue credit cards to Cabela's customers.
Bass Pro will finance the acquisition through preferred equity financing commitments of $1.8 billion from Goldman Sachs Group Inc (GS.N) and $600 million from buyout firm Pamplona Capital Management.
JPMMorgan Chase & Co (JPM.N) advised Bass Pro Shops and Guggenheim Securities advised Cabela's on the deal.
(Additional reporting by Michael Flaherty and Lauren Hirsch in New York; Editing by Bernard Orr)