Pier 1 seeks to acquire Cost Plus 

By Staff -- Home Textiles Today, 6/9/2008 1:28:00 PM

Fort Worth, Texas – Struggling home furnishings specialty retailer Pier 1 Imports has proposed a stock-for-stock acquisition of another specialty chain seeking a turnaround, Cost Plus World Market.

Pier 1 said it would issue. 0.6 shares of its common stock for each share of Cost Plus common stock. “Based on the closing prices of Pier 1 Imports and Cost Plus on June 6, 2008, the proposed exchange ratio implies a value of $4 for each share of Cost Plus common stock,” noted Pier 1.

This would be a premium of about 34% over the average closing price of Cost Plus shares during the last 30 days, the company said. However, shares of Cost Plus shot up by more than 20% in early trading today, undercutting some of any ultimate premium value. By midafternoon, Pier 1 shares were off 13%, while Cost Plus shares were up about 12%.

“Given our similar customer bases and broadly similar business models, but distinct market positions, we believe Cost Plus is an excellent fit with Pier 1 Imports,” said Alex Smith, president and ceo of Pier 1. Smith pointed to the strategic advantages from “organizational efficiencies in the supply chain management, shared services, store operations and other general administrative costs.”

On an interesting note, Pier 1 observed, “We note that our companies have several significant shareholders in common. In fact, we estimate that our common shareholders own approximately 62% of Cost Plus’s outstanding shares.”

The Pier 1 annual meeting of shareholders is scheduled for Friday, June 20.

Pier 1 recently reported its first profitable fiscal quarter in three years, and its first positive comp-store performance since 2003. The 1,034-store chain recorded a full year 2007 net loss from continuing operations of $96.0 million as sales fell % to $1.5 billion.

Pier 1 pointed to about $160 million in cost savings it said it has achieved over the past year “as a result of its efforts to reduce marketing expenses, payroll and other general administrative costs”

San Francisco-based Cost Plus, which operates 305 stores, already has a plan to cut its corporate workforce by 10% this year while it exits several markets to better leverage media outlays. Key to its stated plan is the effort “to reconnect with its loyal customer base and reinforce its value pricing strategy,” the retailer said in its annual report.

Cost Plus recorded a net loss of $55.5 million in 2007 – more than double the year-prior loss – as sales edged down 1.6% to $1.0 billion, but the chain has showed signs of stabilizing.