Activist investor Mill Road Capital Management has issued a letter to shareholders of Big Lots urging a sale of the company.
Hill Capital Management, which has purchased 5.1% of Big Lots stock, revealed in a March 15 filing with the United States Securities and Exchange Commission that it was advising Big Lots management to pursue a sale of the company.
In the letter, the investment firm said that management had done a “great job” with the company, but public valuation has ignored improvements in its operations and the retailer’s long-term outlook. As such, Mill Road suggests that the Big Lots board of directors should pursue a sale at $55 to $70 per share.
The letter goes on to say that Mill Road is “highly disappointed” that the company’s market valuation as determined by Wall Street and a share price of $31.99 doesn’t reflect Big Lots’ growth potential, recession-resistant business model and remaining owned real estate value.
The company’s owned real estate already is attractive in a sale/leaseback arrangement, the letter continued. And it added that recent acquisition proposals considered by Kohl’s Corp. provide evidence that credible buyers for retail assets that possess “growth potential, attractive transaction financing and discounted valuation” are available in the market.
Mill Road noted, “Consequently, we strongly believe the best path to present value maximization for all shareholders is for Big Lots’ board of directors to engage an independent financial advisor in the near term to actively solicit acquisition proposals for the company.”
In the SEC filing, Hill declared:
“On March 15, 2022, the management company issued a letter to the shareholders of the issuer expressing praise for the Issuer’s management team and its successful implementation of a strategic plan and encouraging the Issuer’s board of directors to engage a financial advisor and pursue a sale process. The management company believes a sale process could maximize value for the Issuer’s shareholders at an assumed purchase price of $55 to $70 per share, which represents a premium of 72% to 119% over the closing price of the common stock on March 14, 2022, of $31.99.
The reporting persons intend to review continuously their equity interest in the Issuer. Depending upon their evaluation of the factors described below, one or more of the reporting persons may from time to time purchase additional securities of the Issuer, dispose of all or a portion of the securities then held by such reporting persons, or cease buying or selling such securities; any such additional purchases or sales of securities of the Issuer may be in the open market, in privately negotiated transactions or otherwise.
The reporting persons may wish to engage in a constructive dialogue with officers, directors and other representatives of the issuer, as well as the issuer’s shareholders; topics of discussion may include but are not limited to, the Issuer’s markets, operations, competitors, prospects, strategy, personnel, directors, ownership and capitalization.”
