By Thomas J. Ryan

Already dominant players separately in the hunt & fish space, the merger between Bass Pro Shops and Cabela’s will easily create the industry’s retail leader in the category, nearly doubling in size.

With Bass Pro’s sales in 2015 estimated at $4.3 billion and publicly traded Cabela’s (NYSE:CAB) at $3.2 billion last year, the combined business will generate revenues around $7.5 billion. The closest direct competitors in the hunt & fish space would be Gander Mountain, with estimated sales last year of $1.37 billion, and Sportsmans Warehouse, with nearly $730 million in 2015 sales.

Bass Pro Shops will acquire Cabela’s for $65.50 a share, a 19-percent premium of its closing stock price, September 30, but plans to keep the Cabela’s brand going. The deal consists of about $4.5 billion in cash, with debt and other items bringing its value to $5.5 billion.

Cabela’s, with 19,700 employees at the end of 2015, has 85 specialty retail stores, primarily in the western U.S. and Canada. Bass Pro Shops, with about 20,000 employees, operates 99 stores and Tracker Marine Centers located primarily in the eastern part of the U.S. and Canada. The merger will also include White River Marine Group, a boat business owned by Bass Pro with brands including Tracker Boats, Sun Tracker, Nitro, Tahoe, Regency, Mako, Ranger, Triton and Stratos.

Bass Pro Shops Founder and CEO Johnny Morris will continue as CEO and majority shareholder of the new entity, which will remain a private company with a continuing long-term view of supporting the industry and conservation. The Cabela’s brand will continue.

The deal comes about 10 months after Cabela’s effectively put itself up for sale at the urging of hedge fund Elliott Management, which had declared the hunting-and-fishing retailer undervalued and called for the company to consider a sale or reorganization. On December 1, 2015, Cabela’s said that it was reviewing its strategic options, including a possible sale. The takeover price represents a 40-percent premium to where its shares were trading that day. In April, Reuters reported that Bass Pro Shops was preparing an offer for Cabela’s.

Cabela’s was founded in Sidney, NE, by Dick, Mary and Jim Cabela, in 1961. Bass Pro Shops indicated that it would “maintain important bases of operations in Sidney and Lincoln.” Jim Cabela, 77, is the company’s largest shareholder, with 23.2 percent of the company’s shares.

“Today’s announcement marks an exceptional opportunity to bring together three special companies with an abiding love for the outdoors and a passion for serving sportsmen and sportswomen,” said Morris, who founded Bass Pro in 1972 in his father’s liquor store near Springfield, MO. “The story of each of these companies could only have happened in America, made possible by our uniquely American free enterprise system. We have enormous admiration for Cabela’s, its founders and outfitters, and its loyal base of customers. We look forward to continuing to celebrate and grow the Cabela’s brand alongside Bass Pro Shops and White River as one unified outdoor family.”

“Cabela’s is pleased to have found the ideal partner in Bass Pro Shops,” said Tommy Millner, Cabela’s CEO, in the statement. “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. In addition to providing significant immediate value to our shareholders, this partnership provides a unique platform from which our brand will be extremely well positioned to continue to serve outdoor enthusiasts worldwide for generations to come.”

A Cooling Category?
The deal comes as the overall active-lifestyle retail space deals with tremendous changes, particularly in the big-box sector, facing growing competition from online retailers like Amazon. But there are also growing pains within the hunt & fish category itself. Business in the category boomed at the turn of the decade thanks to an influx of cash in the hands of sportsman consumers, including returning military, oil-and-gas workers and a rush of firearms buyers amidst potential stricter gun laws. Six years later, there is more uncertainty, with a drastic drop in oil prices and a general sense that firearm sales will slow sometime after the U.S. election.

Last year, hunting equipment accounted for 45.5 percent of Cabela’s sales versus general outdoors, 31.2 percent, and clothing and footwear, 23.3 percent. Cabela’s had struggled in recent years with declining sales of apparel and footwear. In its most recent second quarter, however, the retailer reported its first quarter of positive comparable-store sales since the third quarter of 2013, benefiting from a multi-year restructuring effort aimed at lowering operating expenses, with the savings invested into customer-facing price-and-promotion activities to drive sales growth.

The 1.5 percent same-store gain in the period was attributed to strength in the firearms, optics, fishing, shooting, camping, power sports and home and gift categories. While apparel and footwear categories “improved meaningfully from previous trends,” they remained soft.

Financing The Deal
The companies did not discuss any closures or layoffs that may result due to the merger, although they said in a statement that Springfield, MO-based Bass Pro Shops would “celebrate and grow” the Cabela’s brand.

To support the deal, Bass Pro Shops secured $1.8 billion in financing from the merchant banking division of Goldman Sachs and $600 million from the private equity firm Pamplona Capital Management.

Bass Pro Shops will also take on a partnership with Capital One Financial Corporation to originate and service Cabela’s co-branded credit card. Just before the closing of the transaction, Capital One will acquire some assets and liabilities of Cabela’s World’s Foremost Bank; the cash from this transaction will stay on Cabela’s balance sheet until it’s acquired by Bass Pro Shops.

The transaction, subject to regulatory and Cabela’s shareholders’ approvals, is expected to close during the first half of next year.

Photo courtesy Bass Pro Shops