Cost Plus operates 299 stores; Pier One operates 1,117 stores. In a letter that began by listing all of Cost Plus' problems, Fort Worth, TX-based Pier One last week offered to acquire its smaller competitor for 0.6 of its shares for every Cost Plus share, which implied a price of $4 per share or approximately $81 million. The offer was 31% higher than Cost Plus' closing share price on the day before the offer.
After rattling off Cost Plus' troubles--from its "multiple management changes" to its "unsuccessful" restructuring to its "precipitously" declining stock price, and how that stands in stark contrast to Pier One's performance--Pier One president/chief executive Alex Smith states in the offer letter that the combined company could achieve costs savings for Cost Plus in the range of 5% of sales (approximately $50 million) and that Cost Plus shareholders would enjoy improved operational liquidity and a more active trading market for their shares.
"We are confident that 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," Smith said.
Cost Plus' response, signed by board chairman Frederic Roberts, was short and to the point, calling the offer "not attractive from either a financial or a strategic perspective" and "both distracting and ill-timed given the difficult retail environment and the progress we have made investing in and improving our business."
"We believe that our strategic plan, which is yielding positive results, will provide Cost Plus shareholders with superior and compelling long-term value as an independent company," Roberts writes. "Despite your statements to the contrary, Cost Plus has significant liquidity to pursue its business objectives and to deliver improvement in our core business metrics."
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