Bed Bath & Beyond (BBBY) just got wrecked. The home goods retailer's stock was annihilated by news investor Ryan Cohen was dumping his entire stake in the company, some 9.4 million shares, and stock options, or about 10% of the retailer's outstanding shares.
Having only established his position back in March and wrangling three seats on Bed Bath & Beyond's board of directors, while also engineering the ouster of CEO Mark Tritton, Cohen's RC Venture hedge fund packed its bags and ran for the exits.
Bed Bath & Beyond's stock crumpled 19% during regular trading hours, and then it was hit with a neutron bomb that evaporated an additional 42% of its value after the market closed. All that's left is an empty husk of a company that immediately scrambled to hire a reorganization expert to help manage its untenable debt load.
Build up hope only to dash it
While it was bad enough Cohen obliterated the hopes of many investors that he was with them for the duration of the turnaround of the ailing retailer, the manner of his exit will leave a sour taste in the mouths of many.
That's because on Monday, RC Ventures filed a statement with the Securities & Exchange Commission showing it had acquired over 1.6 million call options on Bed Bath & Beyond that were far, far out of the money with strike prices between $60 per share and $80 per share.
The revelation that Cohen had a big stake that suggested massive stock appreciation potential caused a melt-up in the home goods retailer's shares. The stock, which closed at $12.95 per share the previous Friday, ended Monday 23% higher and followed that with spikes of 29% on Tuesday and 12% on Wednesday as traders piled into the stock.
According to data from Vanda Research, investors bought up $73.2 million worth of stock on Tuesday and another $58.2 million worth on Wednesday. In just three days, Bed Bath & Beyond stock rallied some 78%. And that's when Cohen pulled his switcheroo.
Wednesday afternoon, just before the market closed, RC Ventures submitted a filing to the SEC stating its intention to sell its entire stake in the company, including the 1.6 million in stock options. Investors suddenly realized they were going to be left holding the bag.
Actually, RC Ventures began selling its shares on Tuesday, and by Wednesday night it had completely exited its position.
Bed Bath & Beyond was forced to issue a statement in response to numerous media inquiries saying it appreciated the opportunity of working with RC Ventures. Still, now it is focused on staying afloat.
We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies; all to restore our company to its heritage as the best destination for the home, for all stakeholders.
One of those priorities will be juggling its debt load. Bloomberg reports it has hired restructuring and bankruptcy specialist Kirkland & Ellis to work out how it could raise new money or refinance its existing outstanding debt, or both.
To help reduce its debt burden, it may still sell its 135-store buybuy Baby chain. Over the past few years, it has also unloaded Cost Plus World Market, Christmas Tree Shops, One Kings Lane, and PersonalizationMall.com.
The situation is certainly dire for Bed Bath & Beyond. In its fiscal first quarter report in June, interim CEO Sue Gove said the retailer experienced "an acute shift in customer sentiment" that has only "materially escalated" as summer set in.
Revenue tumbled 25% on a 23% collapse in comparable-store sales leading to an adjusted loss of $2.83 per share compared to a profit of $0.05 per share last year.
It could be Cohen just didn't see any further hope of a turnaround succeeding at Bed Bath & Beyond. Having acquired his stake earlier this year for about $121 million, his maneuvering with the filings and sales allowed the hedge fund to escape with some $189 million, or about $68 million in profit.
Small investors, though, were not so lucky. They may give the home goods retailer a new name after this episode: Bloodbath & Beyond.