At Home Group (NYSE: HOME) is currently in the midst of a takeover battle that has more twists and turns than your favorite reality TV show. Let's dive into the controversy and what it could mean for investors in the brand. It's a good example of what happens when a publicly traded company decides to go private.
At Home is a home decor store that has 226 stores in 40 states. Like other home furnishing brands, it benefitted from the COVID-19-induced nesting trend. In March 2021, it announced sales of $562 million in the fourth quarter, an increase of 41.3% year over year. It also saw comparable sales increase by nearly 31%. At that time, Lee Bird, the company's chairman and CEO, plotted plans for aggressive expansion, saying, "With the resumption of new store openings, we have reignited a key growth engine on our long-term journey to 600+ stores."
A private equity firm makes a move
In early May 2021, Hellman & Friedman, a private equity firm, announced it would be taking At Home private in a transaction valued at $2.8 billion. Stockholders would receive $36 a share, which represented a premium of around 17% over the stock price at that time. The transaction was expected to close in the third quarter of 2021, and At Home Group was authorized to seek out alternative proposals from other third-party investors during a 40-day "go-shop" period.
Shortly after the announcement, CAS Investment Partners, a company that owns 17% of At Home Group stock, sent a letter to At Home Group's Board of Directors contesting the valuation of the company. CAS concluded that the appropriate sale price would actually be a value of closer to $70 per share. It believes that At Home can achieve around 20% store growth in fiscal year 2023 and that earnings could reach $6.74 per share by fiscal year 2027. It also accused At Home Group of not actively seeking other proposals during the go-shop period. To drum up shareholder support, CAS filed a preliminary proxy statement with the SEC that it plans to launch a formal opposition to the sale.
Meanwhile, in June, At Home Group declared first-quarter fiscal 2022 net sales of $537.1 million and a comparable store sales increase of 187.3%. Gross profit was $200.3 million compared to $16.4 million in the first quarter of fiscal 2021. Adjusted earnings per share (EPS) stand at $0.87.
On June 15, the go-shop period expired, and At Home stated that it would postpone its annual meeting of shareholders. One day later, on June 16, Hellman & Friedman said it would raise the acquisition price to $37 per share, lifting the premium on stock price as of May 4th to around 21%.
Will the At Home sale go through?
CAS issued a public letter to At Home stockholders on June 18 rejecting the $37-per-share proposal from Hellman & Friedman, saying that the "original offer of $36 per share and recently revised offer of $37 per share grossly undervalue the Company and deprive stockholders of meaningful value."
The letter also alleges that CEO Lee Bird has been working with Hellman & Friedman since 2017, noting that he is receiving over $100 million in incentives to complete the acquisition. CAS notes that At Home was trading at over $37 per share three years ago and is once again on an upward trajectory. CAS has also created a designated website, protectathome.com, to inform other shareholders of its point of view.
The Millionacres bottom line
When a private equity firm purchases a publicly traded company, it's up to the shareholders to decide if the deal adequately reflects the value of the company. A majority of shareholders must approve the deal, which is why, in the case of At Home Group, CAS is trying to rally additional shareholders to agree with its point of view and vote against the deal. Meanwhile, At Home Group's price per share has climbed to close to $37 in recent weeks.