FTC's second request delays Bass Pro-Cabela's merger

Dive Brief:

Outdoor sports retailers Cabela’s and Bass Pro Shops have each received a request for additional information and documents (commonly known as a “second request”) from the Federal Trade Commission in connection with their proposed $5.5 billion merger, according to a report Cabela's filed Friday with the Securities and Exchange Commission.
The Cabela’s filing also indicates that bank holding company Capital One no longer expects to receive regulatory approval from the Office of the Comptroller of the Currency for its proposed acquisition of Cabela’s credit card business by Oct. 3, 2017, the date after which the parties would have the right to terminate their deal.
Cabela's said in the filing that it's evaluating “potential alternative structures” to determine whether there's a way to permit a closing of the deal before Oct 3, but also said it’s “not able to give any assurances … that any such alternatives will be identified" or agreed to by the deadline.

Dive Insight:

The FTC’s “second request” has the effect of extending the waiting period for the Bass Pro-Cabela's merger, though it doesn’t mean that the FTC has concluded that the transaction raises competition concerns, according to the filing. Even so, the news of the request Friday sent Cabela’s shares down 7%.

This is the second wrinkle in the merger proceedings: A November request from the FTC for more information led Cabela’s to refile its merger application, which gave the agency until Dec. 29 to either complete its review or compel the need for a second request review (a discovery procedure for mergers and acquisitions with possible anti-competitive consequences). That request is now official, and launches a more involved process that will likely delay proceedings for several months.

Rumors of a sale of struggling outdoor retailer Cabela’s had been brewing for months and months before privately held Bass Pro Shops agreed in October to acquire its rival for $65.50 per share in cash — a bid that outpaced a competing offer from private equity firm Sycamore Partners, working with credit company Synchrony Financial. Now it looks like official consummation of the deal will take yet a few more months.

Cabela's and Bass Pro Shops have a lot in common. Both were founded in roughly the same era and roughly the same area of the country, with a similar number of stores sharing a destination-like shopping approach. “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 earlier this year. “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’s also considerable overlap in their customer bases: Bass Pro noted that 45% of its customers also frequent Cabela’s, according to a confidential lender presentation cited last month by the New York Post.

The similarities and overlap make a merger both rational and a likely target of careful scrutiny from regulators, according to 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 earlier this year. "And that always raises antitrust concerns, especially in a market of this size and a transaction of this size.”

At that time, Wagner also questioned whether privately held Bass Pro, which is unfamiliar with the regulatory glare that is routine for public companies, might balk at the process. “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.”