Personal Finance

Competitor's Bankruptcy Could Derail Cabela's Merger With Bass Pro Shops

The storefront of sporting goods retailer Gander Mountain

The prospects for Cabela's (NYSE: CAB) merger with Bass Pro Shops just keep going from bad to worse. The $5.5 billion deal had some high hurdles to begin with, but in the four months since the deal was first announced, more roadblocks keep getting thrown in its path.

The latest worry is the possibility that privately-held rival Gander Mountain might declare bankruptcy. Federal antitrust regulators were already taking a closer look at how the tie-up between the two largest names in the industry would impact competition, but if one of the existing players in the space were to go belly up (or downsize considerably), thereby leaving even fewer players in the market, that would make the path to approval even more challenging.

The storefront of sporting goods retailer Gander Mountain

Image source: Gander Mountain.

Take a gander at this

Recently, Reuters reported that Gander Mountain's bold expansion plan had failed, and the outdoor sporting goods retailer was preparing to file for bankruptcy, perhaps as soon as this month.

Calling itself "the nation's largest and fastest-growing outdoor specialty retailer", Gander Mountain operates more than 160 stores in 27 states and had ridden the boom in firearms sales for the past half decade,opening some 50 stores in that time frame alone. Last year, the FBI processed more than 27 million background checks on potential gun buyers, 19% more than the year before and almost double the number it performed in 2010.

However, the election of a presumably gun-friendly president and Congress has slowed sales, with background checks tumbling year-over-year in December and January by 16% and 20%, respectively. Although there are specific events that can account for at least a part of that decline, the imperative to rush out and buy a gun before new strict gun controls are imposed has seemingly been removed.

The result is the stocks of gunmakers American Outdoor Brands and Sturm, Ruger have plummeted in the aftermath. Earlier this month Vista Outdoor reported it is now in the midst of a weak ammunition market.

Shooting itself in the foot

On Vista's earnings call, one Wall Street analyst noted that these cycles have happened before and can last anywhere from one to two years, though CEO Mark DeYoung said the current downturn was still too early in its life cycle to say how long it could go on for. He did acknowledge, though, that it would pressure financially weak retailers and could cause a number of mom-and-pop shops to go under.

That's not exactly how you'd describe Gander Mountain, but it's clear the tidal shifts in the market are affecting its business, and the company was forced to release a statement following the Reuters report saying it has "undertaken a best practices approach to review our strategic options specific to positioning the company for long-term success". The statement didn't mention bankruptcy, and even if Gander Mountain did file, it doesn't necessarily mean it will vanish from the retail landscape but rather reorganize. However, it shows the precarious position of yet another specialty retailer in the niche.

Eastern Mountain Sports' parent company filed for bankruptcy earlier this month, following Sports Chalet in going under, City Sports, and Sports Authority, too.

The interior of a Bass Pro Shop store

Image source: Bass Pro Shops.

Cabela's can't cobble together growth

In its own recently reported earnings, Cabela's saw a 4% drop in retail sales at its stores and a 12% decline online as comparable-store sales fell 6.5% from last year. As a result, profits plummeted 26% to $58 million, and it makes you wonder if Bass Pro Shops isn't reconsidering its offer.

Moreover, it may be stuck having to operate a bank since Cabela's side deal with Capital One Financial has also encountered obstacles. Last month, Capital One all but confirmed its $200 million deal to buy Cabela's credit card business (which is chartered as a bank) was finished , as it expected to withdraw its buyout application or the Comptroller of the Currency would deny it. There's been no news since, and Capital One has not responded to requests for an update on the status of its application.

Between its own declining fortunes, an inability to unload its credit business, a weakening market for its merchandise, and yet another competitor that may declare bankruptcy, Cabela's acquisition by Bass Pro Shops is looking dimmer by the day.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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