Bed Bath & Beyond shareholders left holding 'worthless stock' as bankruptcy hearing approaches
- Without recovery, the company's market cap of $152.25 million, essentially boils down to nothing for common shareholders.
- In its SEC filing in April, the company cautioned that trading in its stock during the ongoing Chapter 11 cases was "highly speculative and poses substantial risks."
Bed Bath & Beyond shares continue to trade at enormous volumes even as the wildly popular meme stock appears weeks away from being declared worthless.
According to Nasdaq data, more than 15 million transactions took place on Aug. 16 in shares of the stricken home retailer, which filed for Chapter 11 bankruptcy protection in late April and began closing its brick-and-mortar stores in recent months after multiple cash-raising efforts failed to keep the company above water.
Its intellectual property was acquired at auction by Overstock, which adopted the Bed Bath & Beyond brand and relaunched the business as an online-only retailer earlier this month. It also plans to adopt the company's stock ticker and change the current OSTK with BBBY in the hope of capitalizing on the long-standing household name. The original company's physical stores are closed and its assets will be liquidated.
In its SEC filing in April, the company cautioned that trading in its stock during the ongoing Chapter 11 cases was "highly speculative and poses substantial risks."
"Trading prices for the Company's securities may bear little or no relationship to the actual recovery, if any, by holders of the Company's securities in the Chapter 11 Cases," Bed Bath & Beyond said.
"The Company expects that holders of shares of the Company's common stock could experience a significant or complete loss on their investment, depending on the outcome of the Chapter 11 Cases."
In its subsequent bankruptcy plan published on July 20, the company confirmed that "in full and final satisfaction of each Allowed Interest in BBB, each allowed interest in BBB shall be canceled, released, and extinguished, and will be of no further force or effect, and no Holder of Interests in BBB shall be entitled to any recovery or distribution under the Plan on account of such interests."
Without recovery, the company's market cap of $152.25 million, essentially boils down to nothing for common shareholders, who fall behind several tiers of bondholders in the reimbursement food chain and do not get a vote on the plan.
The company's planned confirmation hearing will take place Sept. 12, but there have been no positive catalysts to the recent purchases of the company's shares.
Activist investor and GameStop Chairman Ryan Cohen spurred optimism last year by suggesting that its successful Buy Buy Baby unit could potentially achieve a billion-dollar valuation, but no qualified bids came to fruition and Dream On Me eventually acquired the baby segment's intellectual property assets for just $15.5 million.
This would suggest that the current vast swathes of investors trading in the company's stock may be doing so purely on doomed speculation, and will be left empty handed.
Bed Bath & Beyond's stock is down more than 91% since the turn of the year and closed Wednesday's trade at 21 cents per share. Though the timing of the cancellation of the common stock has yet to be confirmed, it seems retail traders are going to see their investments disappear down the plughole.
"Our society has decided to be far less regulated in the hopes that it would perfect humanity. Meme stock trading, drug use and gambling all fit this mold," Cole Smead, CEO and portfolio manager at Smead Capital Management, told CNBC.
"It causes destruction among the users, but we look the other way because government or business can profit. We are allowing people to become degenerates and don't care what the repercussions are. We wonder why our urban areas are permanently damaged while people run to less dense locales. They are running from the destruction."
Overstock 'oversold'
Overstock shares closed Wednesday's trade at $24.22 per share, down 36% from the $37.86 per share high notched at the start of August. However, it remains up 25% year to date.
Michael Pachter, managing director of equity research at Wedbush Securities, told CNBC Wednesday that it is seeing increased downloads of the Bed Bath & Beyond app since the rebrand launched at the start of the month, with the app moving from the bottom half of the top 100 download list to the top quartile.
Pachter, who covers the stock, said the download rate indicates that the brand recognition of Bed Bath & Beyond is working for Overstock, and that its shares are now "oversold."
"The share appreciation was due to optimism that the rebranding would boost sales, and we have no data to definitively prove that is happening. Investors will have to wait a quarter or two to see if OSTK reports revenue growth, but the app download activity is encouraging," he said.
With regard to the original BBBYQ stock (with the Q specifying it's now in bankruptcy proceedings), Pachter noted that the company's debt exceeded its assets even after Overstock paid in $21 million.
"BBBY shareholders are likely to be left with worthless stock. Retail traders likely hope there will be further asset sales, but I'm not sure if there is anything of value left to sell," Pachter added.
Correction: Overstock shares closed Wednesday's trade at $24.22 per share, down 36% from the $37.86 per share high notched at the start of August. An earlier version misstated the percentage.