Bed Bath & Beyond () has reportedly received interest from potential purchasers for its Buybuy Baby subsidiary.
Buybuy Baby is a one-off business with a strong sales reputation. In fact, the company's recent performance was probably one of the main reasons why activist shareholder Ryan Cohen purchased a large chunk of BBBY shares.
Let's dive deep into the profit advantage that a Buybuy Baby purchaseout might give Bed Bath & Beyond shareholders.
BBBY Stock: Who Will Buy Buy Buy Buy Baby?
Paul Sakuma | Credit: AP
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The Buybuy Baby Advantage
Bed Bath & Beyond's business has shown signs of success for some time now. Last year, the company failed to surpass earnings forecasts in any quarter. In the last quarter, total sales slowed by 12%.
According to Bed Bath & Beyond's management, the biggest reason for the disappointing results was the significant headwinds in the macroeconomic environment that has impacted the company's growth.
Despite this, Buybuy Baby's sales increased by two levels in 2021. That was probably the result of Ryan Cohen's acquisition of nearly 10% of BBBY's total shares by his holding company RC Ventures. Cohen is now one of the top five shareholders in the company.
Cohen received a list of requests that he believes will assist the company's management. This item, which has been a source of attention: Spin off Buybuy Baby to alleviate operational stress.
According to Cohen, Buybuy Baby is expected to generate $1.5 billion in sales by 2023. This means a double-digit growth profile and at least 50% digital penetration.
Given these figures, it's estimated that Buybuy Baby alone would gain more value than the entire Bed Bath & Beyond market cap at current levels (1.3 billion as of April 25).
Moreover, with continued growth, Buybuy Baby will be valued at double-digit earnings multiples, which would result in a multibillion-dollar valuation.
Two Potential Buyers
Ryan Cohen's move to BBBY and his focus on Buybuy Baby have already brought the attention of buyers. Cerberus Capital Management and Tailwind Acquisition (), a private equity firm, which is a SPAC (special purpose acquisition company) are among those who may interest in purchasing Buybuy Baby.
The news has resulted in a solid rise in BBBY stocks. See the price difference between the last few minutes of the trading session on Friday April 22 and pre-market trading on April 25:
BBBY increased by more than 100% between the end of February and the end of March. We can attribute this to Ryan Cohen's stock purchase.
Bed Bath & Beyond has attracting attention of retail investors who don't want to miss out because Cohen's demands are met and executed. It's very probable that the potential sale of Buybuy Baby will spawn a major shareholder in the near future.
(Disclaimers: this is not investment advice. The author may be lengthy one or more stocks mentioned in this report. Along the article may also include affiliate links. These partnerships do not influence editorial content. Thanks for the support of Wall Street Memes)