Cost Plus operates 299 stores; Pier One operates 1,117 stores. The Pier 1 statement reiterated that its goal in pursuing the combination was to create a stronger, more efficient company. The company maintains that it would provide Cost Plus "ample" balance sheet liquidity and merchandising expertise "to operate more efficiently in a difficult retail environment."
"We have concluded, however, it is unlikely that we would be able to acquire a majority interest in Cost Plus at a price that would make sense for our shareholders," the company states. " We continue to believe that…the combination…would create significant value for the stakeholders of both companies."
Pier One's offer, made in the second week of June, was 31% higher than Cost Plus' closing share price the previous day. The offer letter rattled off Cost Plus' alleged troubles--from its "multiple management changes" to its "unsuccessful" restructuring and "precipitously" declining stock price, and how that stands in stark contrast to Pier One's performance--before stating 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," stated Pier One president/chief executive Alex Smith.
Cost Plus' responseone week later, signed by board chairman Frederic Roberts, called 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 wrote. "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."
Share of Cost Plus closed trading Wednesday at $2.95, down $0.07 on the day. In the past year the company's shares have traded as low as $2.65 and as high as $9.00. Shares of Pier One at the close of trading Wednesday stood at $4.27, up $0.24 on the day. Its shares over the past year have traded as low as $3.26 and as high as $8.63.
Deutsche Bank analyst Mike Baker stated in a client note Wednesday morning that walking away from its "ill-timed" bid for Cost Plus was a good thing. "The company may still believe in the long‐term merits of such a combination," he said. "But, the negative market reaction and subsequent impaired currency of [Pier 1's] stock made it unable to do a deal without using cash or significantly more stock dilution, neither of which PIR was willing to do. While management may have lost a bit of luster from this episode, we believe it's an incremental positive to cut bait now rather than compound the issues."
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