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Pier 1 Offers $81M for Cost Plus

OAKLAND, CA-Pier 1's CEO says Cost Plus shareholders would prefer "a combined company, focused on long-term growth and profitability rather than a stand-alone Cost Plus preoccupied with simply reaching positive cash flow."

By Brian K. Miller | Updated on June 09, 2008

OAKLAND, CA-You’re drowning; let us throw you a life jacket. That’s essentially the letter Fort Worth, TX-based retailer Pier One Imports sent to the smaller, locally based Cost Plus World Market chain on Friday, offering to acquire the retailer in a stock-for-stock transaction it would like to close in the third quarter. Cost Plus operates 299 stores. Pier One operates 1,117 stores.

Pier 1 Imports offered to issue 0.6 of its share for every share of Cost Plus, which implies a price of $4 per share or approximately $81 million. The offer is 31% higher than Cost Plus’ closing share price on Friday and 34% higher than the company’s 30-day average share price. Share of Cost Plus, which closed at $3.05 on Friday, opened at $3.77 on Monday and in noontime trading stood at $3.58, up more than 17% on the day. Pier 1 Shares opened at $6.50 and was down to $6.00 in noontime trading, off approximately 10%.

Asking to meet with Cost Plus executives today, Pier One president/chief executive Alex Smith states in the letter that the combination will result in improvements in Cost Plus’s operating margins through organizational efficiencies in the supply chain management, shared services, store operations and other general administrative costs. Smith suggests that it can achieve costs savings for Cost Plus in the range of 5% of sales (approximately $50 million). In addition, he says Cost Plus shareholders, who would need to approve the transaction, would enjoy improved operational liquidity and a more active trading market for their shares.

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