Ryan Cohen brings an activist approach to Bed Bath & Beyond

Shoppers exit a Bed Bath & Beyond store in New York City.

Michael Nagle | Bloomberg | Getty Images

Company: Bed Bath & Beyond (BBBY)

Business: Bed Bath & Beyond operates a chain of retail stores. It operates through two segments, North American Retail Sales and Institutional Sales. The company sells a range of domestic merchandise including bed linen and related items, bathware and kitchen textiles; and home furnishings, such as kitchenware and tableware, fine tableware, basic housewares, general home furnishings, consumables and miscellaneous children’s products. As of February 27, 2021, the company had 1,020 stores, including 834 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico and Canada; 132 BuyBuy Baby stores; and 54 stores under the Harmon, Harmon Face Values ​​or Face Values ​​names. It also offers products through various websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, facevalues.com, buybuybaby.com, buybuybaby.ca and decorist.com. Additionally, it operates Decorist, an online interior design platform that provides custom interior design services.

Market value: $2.1 billion ($22.07 per share)

Activist: RC Ventures

Percentage of ownership: 9.81%

Average cost: $15.34

Activist Comment: RC Ventures is Ryan Cohen’s investment vehicle. Cohen is a hugely successful entrepreneur turned activist investor. Cohen is the co-founder and former CEO of e-commerce company Chewy, which he founded and sold to PetSmart in 2017 for $3.35 billion. Cohen remained CEO after the acquisition until March 2018, and in June 2019 Chewy went public at an $8.7 billion valuation. His first 13D filing was on GameStop, which soared to nearly $500 per share mostly on the back of Reddit forums and short cuts, making Cohen a paper profit of over $4 billion on his average cost of 8, $43 on 9,001,000 shares. Cohen then proved that he was a long-term investor more interested in fixing the business than personal profit by not selling a single stock when the stock reached these irrational levels. This is Cohen’s second 13D filing, demonstrating to the market that he’s not just an entrepreneur with an eye for good stocks, but an activist investor with an owner/operator mindset passionate about fixing it. poorly run businesses, especially in the retail/consumer sectors. Clearly, his strategic and operational skills in building and running a business in the digital age give him a ton of credibility. Moreover, he only invests his own money, which certainly sets him apart from most administrators and even activists.

What is happening?

On March 6, RC Ventures (RCV) sent a letter to the company’s board, calling on it to improve operations and maintain the right inventory mix to meet demand, while exploring strategic alternatives that include the separation of buybuy Baby and a complete sale of the company.

In the wings

This is a different situation from GameStop. It’s a company with a first-time CEO, declining same-store sales, and a strategy that didn’t work. He also has an incredibly valuable asset that isn’t reflected in the stock price – his Baby buybuy business, which is the number one priority. The company needs to seriously explore monetizing this asset, which could be worth more than the entire company at present, and while pursuing a strategic deal for this asset, it would make sense to also explore a sale. for the whole company.

Other than that, the business needs to focus on operations. Management has spread thin, focusing on everything from product line and sales growth to private label, capital allocation and balance sheet. Rather, it must focus deeply on a few core issues. Ryan Cohen grew Chewy by focusing on one thing: delivering a great customer experience. Chewy, GameStop, and BBBY are all somewhat commoditized businesses, and that’s how you succeed in commoditized retail. This means having competitive prices, fast delivery, a good selection of products and excellent customer service. This is where management should focus. Also, Bed Bath & Beyond might have better digital penetration like buybuy Baby does.

The company has recently been the subject of shareholder activism. On May 28, 2019, Legion Partners, Macellum Capital and Ancora Advisors awarded four board seats to John E. Fleming, Sue E. Gove, Jeffrey A. Kirwan and Joshua E. Schechter. All three funds have sold their positions, but their four directors currently sit on the board. Ryan Cohen said he wasn’t interested in joining this board, probably because he still invests a lot of his time in GameStop, which is far from finished. A reasonable outcome here would be to settle on three new independent board seats with the formation of a Strategic Alternatives Committee with at least one RC Ventures director on the committee, if not leading it. Ryan Cohen is somewhat new to the activism game, but he shouldn’t be taken lightly. He has the money, the resources and the conviction to launch a full-fledged militant campaign if ignored.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments.

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