Activist Investors Turn Up Heat on Bed Bath & Beyond

By Peg Brickley

An investment firm with a strategy to protect Bed Bath & Beyond Inc. from the carnage in the retail sector, Legion Partners Holdings LLC, is suing the housewares seller, accusing it of risking trouble with lenders to keep them from getting seats on the board of directors.

Bed Bath & Beyond, in a statement Friday, said it is prepared to talk to the activists, which include Legion allies Macellum Advisors GP LLC and Ancora Advisors LLC, and is open to a settlement.

Filed Friday in federal court in New York, the lawsuit is the latest development in a running battle between Bed Bath & Beyond and a group of investors unhappy with the way the company is being run.

An operator of a chain of retail outlets, many of them in malls, Bed Bath & Beyond is vulnerable to the online competition that pushed major retailers such as Sears Holdings Corp. and Toys "R" Us Inc. into bankruptcy,

Bed Bath & Beyond's stock price has fallen about 6% in the past year, and bonds are trading at a discount after a series of ratings downgrades. Moody's Investors Service knocked the retailer's senior unsecured debt rating down from Baa2 to Baa3 in October 2018, citing a decline in gross margins.

The Legion activist group proposes to tackle the company's supply chain and sell off some assets as a way to improve the return to shareholders.

Under pressure from unhappy investors, Bed Bath & Beyond has said it is transforming itself for survival, and appointed new board members. In releases, the retailer has said it's already starting to implement changes including some suggested by Legion and allied activist investors.

According to the lawsuit, Bed Bath & Beyond is refusing to approve activist board candidates as qualified to campaign for votes at the annual meeting. If enough activist candidates win election to the board, it could trip change-of-control triggers on some $1.5 billion worth of debt, according to the lawsuit.

To avoid that scenario, Bed Bath & Beyond only has to certify the activist candidates for purposes of the election, but that's something the company has refused to do, court papers say.

"As the proxy contest proceeds, they [Bed Bath & Beyond's management] will no doubt remind shareholders, either sotto voce or in bold print, that a vote for Legion's slate could spell financial catastrophe," court papers say.

In its release Friday, Bed Bath & Beyond said the activists are attempting to force moves that could amplify the operational and financial risks the company faces. It said company officials need to interview the activist candidates before approving them for purposes of certifying that, if they are elected, the change-of-control provisions of the debt agreement wouldn't be triggered.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

May 10, 2019 17:06 ET (21:06 GMT)

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