The big corporate merger news on Wall Street today is that Cabela’s (CAB) is being bought out by / merged with Bass Pro Shops at a price of $65.50 per share in cash for a valuation of $4.5. billion. Given that Cabela’s earns profits of $3 per share, you might wonder: What gives with the 21.8x earnings valuation? Given that most mergers of mature/maturing businesses take place in the range of 30-40x earnings, and given that there is usually a premium of 37% attached to the typical corporate takeover, you would be wise to ask why Cabela’s is only getting bought out for a 19% premium compared to recent trading.
Are Cabela’s shareholders getting a bum deal here? In short: Absolutely not.
The longer answer is that Cabela’s has loaded itself up with so much debt that Cabela’s exiting shareholders should be absolutely ecstatic that they are able to secure … Read the rest of this article!