How the Deal Went Down

Cost Plus released its preliminary proxy statement last week, outlining how the process of its pending acquisition by Bed Bath & Beyond unfolded.

The story begins in October 2009, when PJSC - Cost Plus' financial advisor - reached out to companies that might be interested in making an equity investment or forming a strategic partnership with the retailer. At the end of the month, Cost Plus would report a narrower third-quarter net loss from continuing operations of $22.3 million (vs. a net loss of $24.0 million in the comparable 2008 period), a 10.4% drop in sales and a comp decline of 3.4%.

BBB responded to the strategic inquiry by proposing the test of a store-in-store concept leveraging, in particular, Cost Plus' merchandising and logistic experience with food and beverage. In the fall of 2010, BBB opened "World Market" food and beverage departments in three stores, expanding to a fourth location late last year.

"From time to time, the parties spoke informally about a possible expanded strategic relationship, but no formal proposals were made," according to the proxy statement filed with the Securities and Exchange Commission.

Early this year, Cost Plus and BBB began talking about adding "World Market" departments to additional stores. By February, BBB ceo Steve Temares raised the idea of exploring an acquisition - stipulating than such a deal would need to be negotiated and completed quickly.

Various meetings and confidentiality agreements ensued. Cost Plus gave the go-ahead for BBB to perform due diligence in March.
More meetings ensued. On April 17, BBB reaffirmed its interest in acquiring the company, and a draft of the merger was drawn up 10 days later. The deal was publicly announced May 9.

So, in the grand scheme of things, the acquisition, once proposed, did advance at a good clip. It's also intriguing that BBB - known for testing new programs to the nth degree - was sufficiently impressed with the results from just four test sites to go for the whole enchilada.

P.S. Should the deal go through as expected, it could push Bed Bath & Beyond past Walmart to become the No. 1 seller of home textiles in the country.