NEW YORK — Elder-Beerman has another suitor, and analysts believe a better fit is hard to imagine.
On Tuesday, The Bon-Ton Stores Inc. proposed a $7-a-share cash merger with Elder-Beerman, potentially beating out a $6-a-share cash offer from Wright Holdings along with Elder-Beerman management, made June 25.
The Bon-Ton offer could spark a bidding war for the troubledDayton, Ohio, based chain, but the York, Pa.-based Bon-Ton must move fast. Bon-Ton said it is prepared to immediately enter into a confidentiality agreement and commence its due diligence with the goal of completing a transaction by the end of September. However, Bon-Ton’s offer is not yet a formal one, since financing must be arranged and due diligence must be conducted.
In addition, Elder-Beerman said it is continuing to proceed with the Wright Holdings offer, which is considered firm since Wright is further along in lining up financing and completing its due diligence. Wright Holdings reportedly has a proxy statement already filed with the Securities and Exchange Commission to tender shares, and the SEC is expected to respond in a few weeks. A shareholder meeting has been set for mid- to late-September on the Wright offer, though that meeting might be postponed in light of Bon-Ton’s offer.
Elder-Beerman emphasized in a statement that “there can be no assurance as to the outcome of the discussions with Bon-Ton and that it is continuing to proceed under its merger agreement with Wright Holdings, which remains in full force and effect.”
Wright Holdings was formed for the acquisition by the Goldner Hawn Johnson & Morrison Inc. private investment fund based in Minneapolis.
Elder-Beerman hopes Wright and management beef up their $6 offer, and it is believed that Elder-Beerman’s senior management, led by Byron “Bud” Bergren, president and chief financial officer, has some financial flexibility to do so, according to a source. Under the Wright/management deal, current management would stay in place, while Bon-Ton would undoubtedly put its own team in charge of Elder-Beerman. Tim Grumbacher is chairman and ceo of Bon-Ton.
Bon Ton’s offer would be valued at around $200 million, assuming $80.5 million in equity based on 11.5 million shares outstanding and about $118 million in Elder-Beerman debt.Retail sources underscored the logic of a Bon-Ton/Elder-Beerman merger. “This transaction makes enormous sense,” said William M. Smith, president of Financo Inc. “There are no overlaps of stores. The companies are geographically contiguous, and Bon-Ton should realize significant synergies from savings across the board. It fits like a glove.” Smith also noted that the two chains are close in size. Elder-Beerman operates 68 stores and posted volume of $670.6 million last year. Bon-Ton hit $713 million in sales last year, with 72 stores currently operating.
Bon-Ton units are in New York, Pennsylvania, Maryland, Massachusetts, New Hampshire, Vermont and West Virginia. Elder-Beerman operates to the west of Bon-Ton, with stores in Ohio, Indiana, Michigan, Illinois, Kentucky, Wisconsin, Iowa, as well as in West Virginia and Pennsylvania. While both retailers have stores in West Virginia and Pennsylvania, there are no stores in the same malls.
Bon-Ton, with about $77.5 million in debt, is less leveraged than Elder-Beerman, with $118 million in debt. Bon-Ton’s cash flow is around $46.7 million, while Elder-Beerman’s is $34.3 million.
“They’re complementary in terms of geographic span, merchandising and vendor structure,” said Arnold Aronson, managing director of retail strategies, Kurt Salmon Associates. “The target customers are similar. This is not unlike the strategy Proffitts [now called Saks Inc.] pursued when it combined with McRae’s, Carson Pirie Scott and other midsized regional retailers. Bon-Ton and Elder- Beerman are compatible.
Aronson added that an Elder-Beerman/Bon-Ton combination would be a more attractive target for larger department store chains, such as May Co., Dillard’s or Federated Department Stores, than either one would be on its own. They could be sitting back and waiting for a bigger kill.
“From a pure dollars-and-cents point of view, it always makes more sense for a consolidation to be strategic,” meaning one retailer taking over another retailer, rather than having a financial buyer, as in the case of Wright, Aronson noted. “Strategic will get you more money in the end.”
With this week’s bidding developments, EB Acquisition Ltd., an Ohio-based real estate investor and developer, seems to have been left in the dust with its $5.50 offer last month, though the company has said it would consider stepping up with a renewed bid.In any case, Elder-Beerman shareholders stand to make out and at least double their money. The stock was trading around $3 prior to May 16, when Elder-Beerman announced it was negotiating to be sold.
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