Dive Brief:
- Last month’s agreement between The Container Store and Beyond, Inc. is on shaky ground in light of a regulatory filing Thursday from The Container Store, warning that it doesn’t expect to be able to meet agreed-upon financing conditions of the deal.
- The retailers on Oct. 15 said Beyond would invest $40 million in The Container Store through a strategic partnership where The Container Store, pending shareholder approval, would give Beyond a 40% equity stake. But that was contingent on The Container Store refinancing its debt or amending terms with lenders.
- Thursday’s filing was essentially a confirmation of Beyond’s statement from the previous day expressing concern, “based on the financing proposal presented to date,” that The Container Store couldn’t forge a satisfactory agreement with its lenders. If that doesn’t change by Jan. 31, either retailer can nix the deal, per Beyond’s press release.
Dive Insight:
The Container Store’s worst nightmare may come true: The struggling company at the end of last month warned that, without its tie-up with Beyond, it could end up filing for bankruptcy.
The retailer has been exploring strategic alternatives since at least May, when it faced delisting from the stock market. Since then the retailer has scrambled to ward off not only the delisting but also a potential hostile takeover, undertaking a stock split and then adopting a poison pill after a single shareholder amassed nearly 20% of its stock. In its most recent quarter, losses widened, revenues tumbled and one analyst warned that it is a company “in freefall.”
While Beyond seemed ready to swoop in and save the day, that retailer hasn’t been the picture of strength, either. The company earlier this year shook up its executive leadership and last month said it would lay off about 20% of its workforce. The company — the parent of Bed Bath & Beyond, Overstock, Zulily and other brands — sprang from Overstock’s takeover of Bed Bath & Beyond via the latter’s 2023 bankruptcy. It’s possible that Overstock overestimated Bed Bath & Beyond’s brand power, though, given that it brought back the Overstock name after momentarily shelving it shortly after the acquisition. In its most recent quarter, Beyond reported a 17% revenue drop and ongoing losses.
In a statement Wednesday, Beyond Executive Chairman Marcus Lemonis said that the company was initially “optimistic that the Container Store would be able to secure adequate financing,” but that “as careful stewards of our shareholders' capital, we must remain steadfast in ensuring that the terms of any financing package work for both The Container Store and Beyond.”
"While we continue to believe in The Container Store’s brand and business fundamentals, the proposed financing terms we have reviewed to date fall short of what we believe is necessary to complete the transaction,” he also said.
For now, the deal between The Container Store and Beyond remains pending, though The Container Store Thursday said it’s unlikely to happen under the current terms. Its conversation with lenders appears to have shifted focus.
“The Company is in advanced discussions with the lenders under its existing term loan credit agreement to provide additional capital to support the Company and its long-term growth and success, reflecting their continued support of the Company's business and strategic initiatives,” the retailer said in its filing.
