Cabela's and Bass Pro Shops Finally Get Some Good News

Bass Pro Shops agreed to acquire Cabela's (CAB) with the hopes of creating a dominant outdoor goods chain that would be better-suited to competing in an increasingly difficult retail environment.

Since the $5.5 billion deal was announced last October, however, there have been concerns it would be stymied by various regulatory and financial roadblocks. On this episode of Industry Focus: Consumer Goods, the team talks about how Cabela's appears to have cleared one of its biggest ones -- the sale of its credit card business.

Vincent Shen: This merger was originally announced last October in what appeared to be a pretty slam dunk transaction, bringing together two of the largest outdoor gear and sports retailers. But there have been a lot of headaches and a lot of uncertainty regarding whether or not the deal would actually go through. What's the story here, Dan?

Dan Kline: It's a very bizarre hang up. You always have to, when you write this story, say regulatory concerns. There was, perhaps, a small amount of concern that because Staples' Office Depot merger wasn't approved, that maybe we just had a governmental environment where if the two biggest players in a field got together, they were just going to say no. But I think the reality is, the Trump Administration is probably not going to deny this deal on that level. But what happened was one of the conditions of the deal was Cabela's selling its credit card unit, effectively, its in-house loyalty card. There was very quickly, announced on the same day back in October, there was a deal with Capital One. The problem is, Capital One has its own regulatory concerns not necessarily related to that deal that was going to make that impossible and push things past some of the deadlines. What's happened is a small regional bank, Synovus has stepped in, and it looks like they're going to purchase the assets, eventually sell some of them to Capital One but effectively clear the way for the Cabela's-Bass Pro Shops deal, which everyone still seems to want to have happen, to happen.

Shen: Yeah, absolutely. I think the key to this all was Cabela's credit card business, and finding some way to pass that on. With the Synovus agreement, from what I've seen, they will hold on to the deposits they get from that transaction and then past the credit card business itself onto Capital One. Some of the backstory behind why Capital One was having a hard time closing that part of the agreement in time based on the broader deal between Bass Pro Shops and Cabela's had to do with a money laundering investigation. Now, with that generally, it seems, kind of this white knight situation, somebody stepping in to save the day, I think overall, investors are still pretty bullish on this deal, and the idea of bringing together these two leading names, well-known for their large and very appealing brick and mortar, physical presence with these huge stores, bringing a lot of customers, trying to maintain traffic.

At the same time, I think investors are a little bit discouraged by Cabela's year-end results. These were reported back in February. Comparable store sales declined 6.5% in the fourth quarter, and online and catalog sales, which really surprised me, took an even bigger hit of 12.4%. If anything, kind of showing that brick-and-mortar having struggled so much in the past few quarters, you see these headlines, store closures, bankruptcies, consolidation might be the best way for these two companies to proceed.

Kline: It is worth noting that Cabela's and Bass Pro Shops run the kind of store that's still going to exist after the retail shakeout. They have destination stores. You might go to Cabela's -- you don't have kids yet, but my son and I -- we've talked about this on the show before -- we used to go to Cabela's to play the games, look at fishing rods, eat lunch, gaze at guns -- every little boy likes guns -- get a piece of fudge in their candy store. Those stores are going to be resilient. But I think they're bumping up against some industry concerns, but more the kind of malaise that sets in when, as employees, you don't know what's happening next. The Cabela's brand name may disappear. None of this has been decided. If you're in the marketing department or the digital department at Cabela's, and you're waiting for this other shoe to drop, I'm not precisely sure that you're advancing plans as if nothing has happened, even though that's what you're supposed to do. So, some of this might just be, everybody thought this deal was going to be closed by now and it wasn't. And some of it is a little bit cyclical. But people are still going to go to these stores. They're entertainment as much as they are shopping.