Confident of changes, Elliott raises its stake in Cabela's

By Paige Yowell

Omaha World-Herald

The hedge fund that owns a big stake in Cabela’s and is agitating for change now owns about 2.2 million more of the company’s shares than it did at the end of 2015.

That the New York hedge fund is putting more chips on the table, finance watchers say, is a sign the fund is confident it’s going to get its way when it comes to a push for change at the retailer. That could include carving up the company and closing its headquarters in Sidney, Nebraska.

The recent buys bring Elliott Management’s ownership of Cabela’s to 9.3 percent of the company, up from its initial stake of 8.9 percent. It still has options to buy more — up to about 11 percent of Cabela’s.

The change in ownership shows Elliott probably does not expect to go away empty-handed, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“They expect a change that will make their shares more valuable,” he said.

The increase in ownership, now over 9 percent, “gives them a lot of presence with management and other stockholders,” Gordon said.

Regulatory filings with the Securities and Exchange Commission show the hedge fund bought or exercised options to buy roughly 1.9 million shares in the first quarter of this year and 325,000 more in the second quarter.

Elliott declined to comment when contacted by The World-Herald.

The so-called activist investor declared its stake in Cabela’s in October last year and has since pressed for changes, including a sale of the company or parts of it. On the table: the company’s valuable credit card business, World’s Foremost Bank, which operates the Cabela’s Club Visa card; the company’s real estate; and the company’s retail arm itself.

Since then, Bloomberg and Reuters news services have reported that Springfield, Missouri-based Bass Pro Shops is eying a bid for Cabela’s in partnership with the private-equity arm of Goldman Sachs. Bass Pro has declined to comment. Several large credit card issuers are also reportedly licking their chops for World’s Foremost Bank.

Cabela’s has stayed silent apart from announcing in December that it would review strategic alternatives. Such a process often results in a sale of part of the business or all of it. Chief Executive Tommy Millner said on a call with investors in July that the process is ongoing and that the company had no updates.

If Cabela’s were to be sold to a competitor like Bass Pro, Elliott and other shareholders would stand to benefit. Such buyers typically pay a premium over the going share price to sweeten the offer and get shareholders to say yes to a deal. Prospective buyers also tout cost savings that could come in the wake of a combined company — no need to have two personnel departments, for instance — as measures that will increase a merged company’s profitability.

Elliott has a reputation for pushing firms successfully toward a sale or breakup of a company, said Nick Gantchev, a finance professor at the University of North Carolina at Chapel Hill who researches shareholder activism.

The recent purchase of additional shares could be “a positive signal that potentially they see things might be moving in the right direction.” For Elliott, the right direction is likely a sale of at least part of the business.

Such hedge funds typically stay with a company for about 16 to 18 months, Gantchev said, before selling their stakes. Elliott tends to stick with companies even longer than that, his research shows.

“Maybe that’s why they’re also more successful in restructurings and mergers and acquisitions — because they’re more persistent,” he said.