BACKGROUND

Bed Bath and Beyond (BBBY) is represented by the red & green candles, SPY is the orange line.

 

After 2008, the broad market went on an absolute tear. Bed Bath and Beyond went along for the ride,hitting all time highs in late 2013. Overall, BBBY followed the SPY until about mid 2015. After a textbook head and shoulders formed in 2015, the stock cratered for 3 years.

 

From 2015 to 2018 the price of BBBY fell from around $70.17 a share, to below $10/share as Net Profits decreased. Institutional longs sold and shorts piled in. In the age of Amazon, Wall Street certainly thought Bed Bath was destined to the grave.

 

The story pushed in the media was that Amazon was eating their lunch. Yet during this time, Bed Bath actually increased their Net Sales each year. They were still profitable. Their margins decreased - but their free cash flow was good, they maintained a strong cash position. Despite this decline in financial health, given some tweaks to their long-term strategy they’d be well poised to survive or thrive.

 

Here's a quick look at their sales & profit / loss over the years followed by a chart showing their relative cash flows over a span of several years. Both their cash flows and their cash positions stayed relatively strong pre-Tritton.

Around mid-2015, the media starts hammering investors with articles like the one below aimed to affect investors emotions.

 

Wallstreet thought there was no way the company was going to survive and nobody would question its demise. There appears to be some evidence of nefarious short sellers, along with institutional investors, possibly colluding in driving the price down into the dirt before switching to a long position in order to launch a proxy war to infiltrate the company allowing them to move to the next phase. In short, they pumped and dumped the whole company a few times with then intent of killing it in the end.

 

 

Here's what that process theoretically could look like: 

 

1. Short and distort from all time highs.

 

2. Close shorts. Go long at multi-year lows to get a 5%+ stake.

 

3. Wage Proxy battle to get board seats / have the CEO fired.

 

4. Install a Board that is either complicit or incompetent or both.

 

5. Have the Board install a complicit CEO. 

 

6. Using inside information, trade against the company while your CEO and board robs it from within.

 

7. Company goes into bankruptcy. Shorts can stay open indefinitely. 

 

8. Tax-free yacht money.  

THE PROXY FIGHT

 

June 2018

 

Former Managing Director of Goldman Sachs, Stephanie Bell-Rose is added to the board. 

 

February-March 2019

 

Legion Partners Asset Management, Macellum Advisors, and Ancora Advisors start building their positions with Legion Partners Asset Management running point. From the start, it looks like they're ready to aggressively trade this thing. Check out the SEC filing here and scroll to the very bottom to see all their trades. 

 

Who is Legion Partners Asset Management? 

 

Let's ask this "Activist Short Selling" issue of Activist Insight Monthly they were featured in.

Between March and April, Legion & pals really start hammering the board with their demands. 

News breaks about the proxy battle. Volume rockets 10x and the price goes up 22%. 

The company wasn't too keen on meeting their demands. In fact, Bed Bath goes so far as to say that Legion & pals didn't have any specific recommendations. 

 

Alas, by May the proxy war is largely successful. Legion and pals get their members on the board, and eventually the then CEO gets fired.

After the shakeup, this is what our board looks like:

A couple of things to note here:

 

First, each board member gets paid fees in cash. 

Second, most board members also get paid via $81,000 in stock options which are vested over time. 

 

So, we've now got a board. The board eventually creates a committee to

find a CEO and Mark Tritton would be hired in later in the year in November, 2019 with

around a $14 million compensation package.

 

Unlike previous CEOs, Tritton decided to take his pay in 88% stock and stock options, which is a significant departure from past CEOs compensation structures. On the surface it looks like he's aligning with shareholders because his capital is "at risk" due to the stock price.