Capital One Financial Corp. indicated on Wednesday that it doesn’t expect to receive regulatory approval of its acquisition of Cabela’s credit card business prior to October 3, 2017, when the deal can be terminated by either party.
The news wasn’t a complete surprise but is now more certain. In early January Cabela’s indicated in a regulatory filing that Capital One “likely” will not get federal bank regulators’ approval to acquire Cabela’s World’s Foremost Bank before October 3. At the time, Cabela’s stated in the filing that the companies were exploring alternative structures that could allow them to close the deals on or before Oct 3.
The $200-million transaction was part of a $4.5 billion merger in which Bass Pro Shops would purchase Cabela’s Inc. but it’s not required to finalize the mega-merger done. Indeed, the credit-card transaction was contingent on the primary deal closing. Still, both deals were expected to close in the first half of 2017 and the Capital One was expected to help shore up Bass Pro’s post-merger balance sheet.
Speaking on its fourth-quarter conference call, Capital One officials vowed to continue to work with Cabela’s to complete the deal. Because the Cabela’s operation is chartered as a bank, the merger required the approval of the Office of the Comptroller of the Currency (OCC).
On the call, Richard Fairbank, chairman and CEO of Capital One, said that within the “next week or so,” it expects to either withdraw its bank merger act application or have the application denied by the OCC.
“Ordinarily a bank would withdraw its application before receiving a denial but in this case our bank deal is tied up with the retailer deal which requires us to get consent from Cabela’s in order to withdraw,” he said.
Fairbank said in the conference call that Capital One must resolve an existing OCC consent order it agreed to as part of an anti-money laundering settlement in 2015 before the OCC will grant the takeover of World’s Foremost Bank.
Fairbank added, “We remain committed to this deal and we will continue to work with Cabela’s and Bass Pro toward completing the transaction.”
In a note, Rick Nelson, an analyst at Stephens Inc., said that while Capital One could refile its application Bass Pro could seek other options for Cabela’s credit card option. These include absorbing the portfolio into its own credit card portfolio or seeking other suitors.
In October 2016 at the same time Bass Pro announced its intention to acquire Cabela’s, Capital One announced that it had entered into a 10-year partnership agreement to originate and service Cabela’s co-branded credit card. It also agreed to acquire Cabela’s credit card operations. They plan on issuing credit cards to former Cabela’s customers, as well as Bass Pro Shop customers.
The delay of the credit-card transaction comes on top of potential delays in the primary merger of Bass Pro and Cabela’s. In early January, Cabela’s indicated that it received a second request for information from the Federal Trade Commission. The agency reviews corporate mergers to see whether they create monopolies.
In its regulatory filing, Cabela’s said the extra information request extends the waiting period, which also could be extended voluntarily by the two parties or ended sooner by the FTC. At the time, Cabela’s said it still expects the Bass Pro purchase to be cleared by the FTC in the first half of the year, but added, “no assurance can be given that clearance will be received within such time frame or at all,” a standard cautionary note in many such filings.
The scrutiny puts a cloud over a deal that promised an almost 20 percent premium to Cabela’s shareholders when it was announced in October. The stock closed Thursday on the New York Stock Exchange at 56.68, up 22 cents on the day. The stock sits below the deal price of $65.50 a share. On the day the deal was announced on October 3, 2016, shares of Cabela’s jumped from $54.93 to $63.18.
Photo courtesy Cabela’s
