After months of rumors and heavy pressure from an activist investor pushing for a sale of its operations (or at least its credit card unit), hunting and sports retailer Cabela’s was sold to privately held competitor Bass Pro Shops earlier this month for $65.50 per share in cash, or approximately $5.5 billion.

Investors Goldman Sachs and Pamplona Capital Management committed a combined $2.4 billion in secured preferred financing to enable Bass Pro Shops to complete the purchase, which beat out a competing offer from private equity firm Sycamore Partners. Upon closing the deal, Bass Pro Shops will enter a multi-year partnership agreement with banking giant Capital One, which will service Cabela’s co-branded credit card.

"Cabela’s is pleased to have found the ideal partner in Bass Pro Shops," Tommy Millner, Cabela’s CEO, said in a statement announcement the sale. "Having undertaken a thorough strategic review, during which we assessed a wide variety of options to maximize value, the board unanimously concluded that this combination with Bass Pro Shops is the best path forward for Cabela’s, its shareholders, outfitters and customers.” 

The two retailers certainly have a lot in common. They were founded in roughly the same era: Sidney, NE-based Cabela's was launched in 1961 by Dick Cabela, and now has some 80 stores in 36 U.S. states and nine more in Canada, as well as a catalog business that generates 24% of its sales. Springfield, MO-based Bass Pro Shops, meanwhile, was founded 10 years later by Johnny Morris (who still owns most of the company) and runs about 100 stores in North America. Moreover, both companies have worked for years to lure and entertain customers with huge, destination-like stores that include attractions like shooting galleries and taxidermy displays.

“This speaks to one of the greater trends in the industry, in retail but in sporting goods in particular, to create a customer experience that makes it worthwhile to go to a store," IBISWorld analyst Rory Masterson told Retail Dive. “It’s about bringing customers in to brick-and-mortar stores. It invites them to consider buying extra things that they might not have been considering going in."

There are compelling differences as well. There’s little geographic overlap between the two brands, either in the U.S. (where Cabela’s mostly operates in the West, while Bass Pro dominates in the Midwest and East) or in Canada. And while Cabela's primarily targets the hunting segment, Bass Pro caters more to the fishing demographic.

But those complementary philosophies and contrasting strengths, not to mention the sheer size of the deal and the scope of the outdoors market (American hunters spend $34 billion annually and anglers spend another $41.8 billion, according to the most recent United States Fish and Wildlife Service data), could invite a challenge from antitrust regulators, says Scott Wagner, an antitrust expert and partner in law firm Bilzin Sumberg’s litigation group.

“[Bass Pro Shops and Cabela's] really are the best possible example of direct competitors," Wagner told Retail Dive. "And that always raises antitrust concerns, especially in a market of this size and a transaction of this size."

Cabela’s declines

Observers have been anticipating the Cabela's sale for close to a year. First the company slowed a planned expansion after determining that newly built superstores were cannibalizing sales from existing locations: While overall sales in the third quarter of 2016 increased 4.6% to $927 million, the 10 new superstores resulted in same-store sales declines of 4.2%, and profits plummeted 19%.

Gun sales have been another vulnerability. While there are bursts of gun sales whenever a mass murder or other tragedy revives gun control debates, overall firearm sales have eroded, and Cabela’s hunting sales in particular have suffered, according to IBISWorld.

With the pressure building, New York City-based hedge fund Elliott Management Corp. publicly disclosed an 11.1% stake in Cabela's last October and began pushing the retailer to pursue so-called "strategic alternatives." By the end of the year, Bass Pro Shops was said to be readying an offer; although nothing materialized immediately, Cabela’s confirmed in July it was still reviewing its business in advance of a possible sale.

The finalized deal with Bass Pro Shops poses a new set of questions about Cabela's future, however. For the moment, Bass Pro Shops executives have said they will “celebrate” the Cabela’s brand: The Omaha World Herald reports that on Oct. 12, Bass Pro owner Morris told Cabela's employees that the business will likely remain headquartered in Sidney, but said he wouldn’t make “false promises” that all jobs are safe.

“Not that there’s not going to be some consolidation, but we plan to have jobs here — important, significant jobs,” Morris said, according to the Omaha World Herald report, adding “There’s going to be change. There’s going to be some slimming down.”

Antitrust issues

The questions extend beyond Cabela's staff. While the merger could create synergies that would benefit both Bass Pro and Cabela’s stores financially, some changes could alienate longtime Cabela’s customers, because if there is overlap in merchandise, Bass Pro is likely to opt for its own vendors, says IBISWorld’s Masterson.

Even with cuts and efficiencies, the deal also carries enough risk for Moody’s Investor Service to place Bass Pro’s debt ratings under review for a possible downgrade, considering that additional debt may be required as the companies merge. That could be exacerbated if the process is prolonged by a Federal Trade Commission or Justice Department inquiry into the antitrust implications.

“Bass Pro’s proposed deal to acquire Cabela’s combines premier brands in the outdoor sporting goods industry with complementary business philosophies, product offerings and geographic footprints," Moody’s retail analyst Mike Zuccaro wrote in a statement emailed to Retail Dive. “However, the potential deal brings with it significant integration risk, and the company’s final capital structure is unclear given that expected proceeds from Capital One’s purchase of certain financial services assets and assumed liabilities have not been disclosed.”

“Disclosed” could become a loaded word for closely held Bass Pro Shops. It’s not clear that it's prepared for how thoroughly antitrust investigators probe corporate books, Bilzin Sumberg’s Wagner says. Even if a federal examination doesn't result in a challenge, regulators will be pouring over piles of papers to come to a conclusion, one way or another.

“When you have private companies that have to go through this type of scrutiny, sometimes private companies balk at having to hand over detailed information that they’re not used to handing over,” Wagner said. “It looks like they’ve already been through a number of rounds [in the bidding process], but that’s something I would watch — how Bass reacts to a head-to-toe evaluation of their business practices and financials.”

And if the FTC does get involved, watch out. Earlier this year, the commission persuaded the U.S. District Court to grant its request for an injunction against the $6.3 billion merger of office supply rivals Staples and Office Depot, effectively scrapping the deal. In addition, Walgreens Boots Alliance may have to divest itself of up to 1,000 stores in order to win FTC approval for its proposed acquisition of competing drugstore chain Rite Aid.

In other words, the commission's recent antipathy towards mergers of retail rivals is hard to ignore... meaning this fish tale is still far from over. But Wagner, at least, remains guardedly optimistic. “Just because there are concerns doesn’t mean it’ll face [an FTC] challenge,” he said.