Bass Pro Shops to acquire Cabela's stores in $5.5 billion deal

Across much of the United States, it is not just a credit card; it is a Cabela's credit card.

The wallet-sized piece of plastic, depicting a golden sunset slipping behind a mountain range overlooking a lake, became a status symbol for hunting and fishing enthusiasts over the years, giving its users 1 percent back in points to use in any of Cabela's 85 stores. Its popularity is attached to the near cultlike following the outdoor recreation retailer has developed since its founding in the 1960s.

Many credit card issuers were eager to team up with Cabela's after the retailer, which is based in Sidney, Nebraska, said in December that it was exploring strategic alternatives. Cabela's subsidiary — World's Foremost Bank, which was started more than a decade ago to create the loyalty credit card program — was one of the last large co-branded credit card portfolios left in retailing.

After about 10 months of anticipation, Cabela's said Monday that it planned to sell its core retail business to Bass Pro Shops for $5.5 billion. Additionally, Cabela's agreed to sell $5.2 billion worth of credit card receivables and $5 billion in associated liabilities to the Capital One Financial Corp.

While the economic structure of the partnership was not explicitly disclosed, analysts and investors expected Bass Pro Shops would receive a certain amount of royalties each year as it brought in more credit card customers and let them use the brands.

The combined transactions make this the fifth-largest retailing deal in the United States, according to data by S&P Global Market Intelligence.

"That's the key to this deal," said Bill Smead, the chief executive and chief investment officer of Smead Capital Management, which owned about $44 million worth of Cabela's stock before Monday's gain of 15 percent. "They created a cult of addicted customers and attached the most successful credit card operation to that cult."

Cabela's had been struggling in recent years with declines in same-store sales. A depressed stock price attracted Elliott Associates, an activist hedge fund, which announced in October that it had amassed an 11 percent stake. At the time, Elliott indicated that it might seek to push for a sale of the entire business or parts of it.

A few weeks before the announcement of the Elliott investment, Nordstrom sold its credit card business to Toronto-Dominion Bank for $2.2 billion, in a similar partnership.

Bass Pro Shops has agreed to acquire Cabela's for about $65.50 a share, according to a statement Monday. Smead estimates a majority of the deal's value stems from the credit card operations.

Cabela's credit card program reached significant scale despite having pretty conservative lending practices. The unit's median FICO credit score was 794 at the end of 2015, recent filings showed. Capital One can expand the Cabela's credit card business faster because it can take on more credit risk by spreading it out among a larger base, according to James Duffy, an analyst with Stifel.

Analysts and investors assume Bass Pro Shops will be able to retain some of the benefits of the credit card business, but it will most likely be unclear what the accounting looks like in the future. Bass Pro Shops remains privately held, largely by Johnny Morris, who started the company 45 years ago in his father's liquor store near Springfield, Missouri.

"The potential deal brings with it significant integration risk," Mike Zuccaro, a Moody's retailing analyst, said in an emailed statement. "The company's final capital structure is unclear given that expected proceeds from Capital One's purchase of certain financial services assets and assumed liabilities have not been disclosed."

The deal marries Cabela's 19,000 employees with Bass Pro Shops' 20,000, and adds 85 Cabela's stores to Bass Pro Shops' 99. Bass Pro Shops also operates the White River Marine Group, which makes fishing boats.

Cabela's has a store in South Anchorage, and Bass Pro Shops has a store in Mountain View. Requests for comment from local store managers Monday were referred to national public relations personnel.

Bass Pro Shops secured $1.8 billion in financing from the merchant banking division of Goldman Sachs and $600 million from the private equity firm Pamplona Capital Management. The company also plans to receive debt financing for the transaction from Bank of America, Wells Fargo, Citigroup, RBC Capital Markets, UBS and Goldman.

Cabela's was founded in Sidney, Nebraska, by Dick, Mary and Jim Cabela in 1961. Bass Pro Shops indicated that it would "maintain important bases of operations in Sidney and Lincoln." The transaction, subject to approvals by regulators and Cabela's shareholders, is expected to close during the first half of next year.

Alaska Dispatch News contributed to this report.