On Wednesday afternoon, The Wall Street Journal reported that online retailer Overstock.com (NASDAQ:OSTK) completed a $21.5 million acquisition of specific intellectual-property assets of Bed Bath & Beyond (OTCMKTS:BBBYQ). Earlier this year, the home goods retailer filed for bankruptcy, which left the company some options regarding its next moves. On Thursday, OSTK stock soared 15%, eventually rising to almost 20% in the early afternoon hours.
According to the WSJ, the purchase includes Bed Bath & Beyond’s website and domain names. Moving forward, Overstock will use the home goods retailer’s domain rather than the former entity’s eponymous domain name. Within the next week, adds Yahoo Finance, Overstock plans to relaunch the Bed Bath & Beyond domain in Canada.
In addition, the other assets that Overstock purchased include the retailer’s trademarks, trade names, patents, customer database, loyalty program data and other brand assets related to the Bed Bath & Beyond banner, writes the WSJ. However, the deal excludes any assets tied to the bankrupt entity’s brick-and-mortar locations, which will shutter their doors.
As well, the all-cash agreement does not include the Buybuy Baby and Harmon banners and their respective assets. The WSJ added that Bed Bath & Beyond is currently in talks to keep its Buybuy Baby chain open via a possible sale to private-equity firm Go Global Retail, which focuses on the apparel and footwear industry.
OSTK Stock Wins Out on a Seemingly Strong Deal
For the acquiring enterprise, the enthusiasm was palpable. “We think we are a Bed, Bath, and a bigger and better Beyond,” Overstock CEO Jonathan Johnson told Yahoo Finance in an interview earlier today. “When this opportunity came up, it just made a lot of sense.” And stakeholders of OSTK stock agreed.
Notably, Johnson stated that he expects the corporate name of Overstock.com would also change “in the coming months.” However, no firm decision has yet been made. Nevertheless, the deal appears to be a compelling one for the online retailer. Just in the past month, OSTK stock skyrocketed about 61%.
Fundamentally, Overstock’s bid represented a starting or floor bid, also known as a “stalking horse” agreement. According to Investopedia, “[t]he stalking horse sets the low-end bidding bar so that other bidders can’t underbid the purchase price.”
For the distressed party, such an arrangement allows it to avoid receiving low bids as it sells its final assets. Further, a possible advantage for the selling entity is that once the stalking horse bidder posted its offer, other prospective buyers may submit competing bids.
If executed successfully, the final offer could rise substantially higher from the initial one. Since Overstock’s offer represented the sole bid per Yahoo Finance, a bidding war did not materialize. Therefore, Overstock got what it wanted.
Why It Matters
For those speculating on Bed Bath & Beyond, the lack of competition for the namesake domain hurt sentiment. At the time of writing, BBBYQ stock fell more than 13%. Year-to-date, shares stumbled more than 87%, reinforcing the concept that even former meme stocks can crash out hard.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
