BBX Capital (NYSE:BBX)(OTC:BBXTD) and Bluegreen Vacations (NYSE:BXG) have a complicated history dating back to the global financial crisis. After a series of take-private and take-public transactions, in March 2019, BBX again decided it wanted to take Bluegreen private. Unfortunately, this time around, the buyout hit a snag when Bass Pro Shop -- one of Bluegreen's largest distributors -- announced it was canceling their partnership.
A series of transactions
BBX Capital first became involved with Bluegreen Vacations in 2009. Because Bluegreen operates a timeshare business, it has direct exposure to a highly cyclical segment of the real estate market, and its stock was trading at depressed levels following the bursting of the real estate bubble.
As a shrewdly opportunistic buyer, BBX Capital was able to acquire more than half of Bluegreen's stock in the public market for an average price of around $3.12 per share. Its motives were primarily financial, and in 2011, BBX pushed Bluegreen management to sell the company. However, when no interested buyers emerged, BBX chose to take Bluegreen private itself for $10 per share.
Five years later, BBX Capital returned Bluegreen Vacations to the public markets in a 2017 IPO priced at $14 per share -- presumably in a bid to take advantage of frothy equity markets.
Bluegreen's 2019 buyout
The stock has had a less-than-stellar performance since then. After trading at levels as high as $25 per share, one year after the IPO, Bluegreen was trading below its offering price. And that inspired BBX Capital to take action.
On March 4, 2019, BBX Capital announced that it would again take Bluegreen private, this time for $16 per share. The announcement press release shed light on the motivations behind the move:
While Bluegreen went public in November 2017, the anticipated benefits of becoming a public company were not fully realized and the costs and management time associated with being a public company were significant. It was anticipated that there would be sufficient liquidity in the trading of Bluegreen's common stock, but the concentration of public holders of Bluegreen's common stock by a few large shareholders adversely impacted the liquidity of the stock.
Essentially, BBX Capital doesn't believe keeping Bluegreen public is worth the effort or cost of maintaining public filings. The low trading price does not reflect the value that BBX believes its stake is worth, and it has little interest in selling more shares at current levels.
BBX already owns 90% of BXG's shares, which should have meant that the transaction would be easy to consummate because it won't be subject to a shareholder vote or financing conditions. So Bluegreen's other shareholders must have thought the acquisition was a done deal. That assumption would have been wrong.
Bass Pro Shop changes the equation
Just weeks after the buyout was announced, Bass Pro Shop gave notice that it was going to cancel its partnership with the company.
Bluegreen primarily serves as a middleman, connecting resort owners with people who want to buy vacation ownership interests -- aka, timeshares. It partners with hospitality giants such as Choice Hotels to provide the hotel destinations, and companies such as Bass Pro Shop to help it market the timeshares to buyers.
Under the partnership, Bluegreen had the exclusive right to sell vacation products at Bass Pro's U.S. stores, and also had access to the retailer's customer database for lead generation. Given that Bass Pro Shop was one of its largest points of distribution -- accounting for 9% of 2018 sales -- the loss of this deal will put a serious dent in Bluegreen's revenue.
The termination of the agreement was not directly related to the plan to take Bluegreen private again; however, it did cause BBX Capital to put the acquisition on hold, and two months later, to cancel it. It makes some sense that BBX would reevaluate its bid in light of of the changes to Bluegreen's financial situation. It's unclear how much damage this will do Bluegreen's value, so BBX doesn't want to shoulder all the risk, even though it already owns 90% of the company.
In all likelihood, BBX Capital will come back to the table at some point to buy the remaining shares of Bluegreen. The Bass Pro Shop situation ensures some short-term disruption in the company's financial performance, and management realizes that, once the smoke clears, it will probably be able take it private at a lower share price. This is bad news for minority shareholders, most of whom are underwater as BXG closed at a fresh lows this week.