Cabela’s shares climb after investor reveals 11% stake in firm

Shares in Cabela’s Inc. — a retail chain that sells hunting, fishing and camping supplies — rose by the most in five years after activist investor Elliott Associates disclosed an 11 percent stake in the company and said it may push for a shake-up or leveraged buyout.

Cabela’s shares are “significantly undervalued,” Elliott said in a filing on Oct. 28, sending the stock up as much as 20 percent to $40 in New York trading — the biggest intraday gain since Nov. 2, 2010. The retailer, based in Sidney, Neb., was valued at $2.32 billion as of Tuesday’s close.

On Thursday, shares dropped 20 cents, or less than 1 percent, to close at $39.06. Shares have traded as low as $33.30 and as high at $58.90 over the past year.

Elliott sees Cabela’s as a possible takeover target, with private-equity firms or other retailers serving as buyers. Bidders also might be interested in Cabela’s “substantial” assets, Elliott said in the filing. The investment firm plans to hold discussions with the chain’s board and management officials about options that could include a sale, changing the capital structure, or shuffling management and operations.

The move follows a slump at Cabela’s, which built a following among hunters and outdoor enthusiasts but has seen comparable-store sales decline. When Chief Executive Officer Tommy Millner delivered disappointing earnings on Oct. 23, he said the retailer suffered from “significant weakness” in its fall apparel and footwear offerings. Cabela’s shares had been down 37 percent this year before Wednesday’s rally.

The company’s growth had been fueled by a surge in gun sales, said Tony Scherrer, director of research for Smead Capital Management, which has owned Cabela’s shares since 2008. Now the retailer needs to appeal to outdoor shoppers who aren’t interested in fishing and hunting, he said.

“It’s clear they need a facelift,” Scherrer said. “What they need to do is get to the people who like outdoor experience — the REI crowd.”

Elliott, run by hedge-fund billionaire Paul Singer, has been involved in a number of efforts to shake up companies in recent years. The fund agitated for changes at EMC Corp., which earlier this month agreed to be bought by Dell Inc. in the biggest computer-industry deal ever.

Elliott’s bid for software maker Novell Inc. in 2010 led to its subsequent sale to Attachmate Corp. The activist investor’s other targets have included Riverbed Technology Inc., Juniper Networks Inc., NetApp Inc. and Informatica Corp.

Scherrer said he’d rather see Cabela’s make internal improvements and stay a public company. Smead, which has about $2 billion in assets under management, is the retailer’s 17th-largest holder, according to data compiled by Bloomberg.

Still, Scherrer wasn’t surprised to see an activist investor targeting the stock.

“The valuation looks so attractive,” he said. “If someone can throw their will around and unlock some of that, there’s a lot of upside.”