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HomeMarketBed Bath Beyond Says Equity Deal Would 'Significantly Dilute' Stockholders

Bed Bath Beyond Says Equity Deal Would ‘Significantly Dilute’ Stockholders

Wedbush analyst Seth Basham is skeptical that the Bed Bath & Beyond can pull off the deal.

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Stephanie Keith/Bloomberg

No one knows how many shares
Bed Bath & Beyond
would issue for its proposed $1.025 billion equity offering, but the deal would “significantly dilute the ownership interest of the existing holders” of the common stock, according to a securities filing Monday.

 The proposed offering of convertible preferred stock, warrants to buy the convertible preferred shares, and warrants to buy common stock would be used along with $100 million of new borrowings to repay $1.13 billion of asset-backed loans.

The equity deal is an attempt to avoid a bankruptcy filing by the troubled retailer, which is in default on an asset-based lending facility. The deal is being handled by B. Riley Securities.

 The company has about 117 million outstanding shares and is authorized to issue 900 million common shares. It hasn’t disclosed the terms of the offering, including how much stock would be issued.

Still, the news of the offering has depressed Bed Bath & Beyond shares, which soared 92% to $5.86 Monday. The stock was off 42% Tuesday in premarket trading to $3.58, valuing the company at about $394 million.

The potentially dilutive equity deal—and the likelihood of bankruptcy if the offering isn’t successful—highlights the risk in Bed Bath & Beyond shares at current levels. Wedbush analyst Seth Basham is skeptical that the company can pull off the deal.

“Unfortunately, we see a low probability that the company will be able to raise equity and view this as a “last gasp” before filing for bankruptcy protection,” he wrote in a client note Tuesday. Bed Bath & Beyond said in Monday’s filing that if it can’t complete the transaction, “it will likely file for bankruptcy protection and that its assets will likely be liquidated.” In that scenario, equity holders “would not likely receive any recovery,” the company said.

One sign of skepticism about the deal’s success is that the company’s public unsecured debt continues to trade at depressed levels. The 5.165% debt due in 2044 was trading at 15 cents on the dollar Tuesday, according to Bloomberg.

While the bond price has doubled Tuesday, that is an indication that bondholders don’t expect to come out whole, even though there was a bit more optimism Tuesday than Monday. If bond investors were optimistic about the company’s prospects, the debt would trade at much higher prices.

The company has about $1 billion of unsecured public debt outstanding.

Convertible preferred stock, one of the types of securities the company plans to sell, can be exchanged for the issuer’s common stock under certain conditions. Warrants on common shares allow holders to purchase the stock based on predetermined terms.      

The company disclosed in the filing some financial projections in connection with the proposed offering including a sharp recovery in the latter half of its fiscal 2023, which starts on March 1.

 “Plans for Fiscal 2023 Comparable Sales in mid- to high-single digit range based on Comparable Sales down 30 percent to 40 percent in the fiscal first quarter and sequential, quarterly sales improvement thereafter,” it said.  

The company sees an adjusted gross margin of 30% for the fiscal year, expense reductions of $1 billion and an “adjusted EBITDA margin in mid-single-digit range.” Ebitda, a measure of cash flow, refers to earnings before interest, taxes, depreciation, and amortization.

Write to Andrew Bary at


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