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Bass Pro Shops' acquisition of Cabela's now looking shaky

Things are looking shakier by the day for Bass Pro Shops' $5.5 billion acquisition of Cabela's.

Hedge funds that bet on the probability of deal closing, known as merger-arbitrage, are trading the deal at prices that would indicate a 40 percent chance of it going through. That lack of optimism from the hedge fund community stems from some hiccups that have appeared surrounding one of last year's most-complex deals.

For one, the antitrust situation is getting trickier. Many outdoor retailers stocked up on guns, assuming that Hillary Clinton would take the White House. Consumers tend to purchase more guns when they perceive a change in government or policy that could mean stricter regulation.

But with President Donald Trump's surprise victory in November, consumers have not been buying guns in droves as retailers expected. That has hurt revenue numbers for Vista Outdoor, which reported earlier this week. Meanwhile, Cabela's —which reported fourth-quarter earnings on Thursday — showed revenue declined 4.9 percent.

Toward the end of the year, "firearms and shooting-related categories became challenging," said Tommy Millner, Cabela's chief executive officer, in the statement Thursday.

Concurrent with Cabela's agreement to sell its retail business to Bass Pro Shops, is its deal with Capital One, which acquired Cabela's credit-card business. That deal is contingent upon the Office of the Comptroller of the Currency, which has not yet agreed to grant approval due to an unrelated issue with Capital One.

Elliott Management, which disclosed an 11 percent stake in Cabela's in October 2015, pushed for a sale of the company. The activist hedge fund showed in a filing Tuesday that it had sold its 6.3 million shares in Cabela's during the fourth quarter. That would have been before the stock really plummeted in early January.

On Friday, the stock was trading around $45 a share, which is 33 percent below the $65.50 per share in cash that Bass Pro Shops offered to pay for the company in October 2016.

If no deal is reached, analysts say Cabela's could fall even further below its pre-deal price. Stifel sees the standalone value of the company at $34.39, representing another 24 percent drop from these levels.

Stifel said in a note this week that the deal could close as it was signed, or be redone at a lower price or unravel altogether.

Elliott and Bass Pro Shops declined to comment. Cabela's did not respond to a request seeking comment.