CAS Investment Partners Sends Letter to At Home Group’s Board of Directors
CAS Investment Partners, LLC (together with its affiliates, “CAS” or “we”), which beneficially owns approximately 17% of the outstanding common stock of At Home Group Inc. (NYSE: HOME) (“At Home” or the “Company”), today announced that it has sent the following letter to the Company’s Board of Directors (the “Board”):
May 16, 2021
The Board of Directors
At Home Group Inc.
1600 East Plano Parkway
Plano, Texas 75074
Dear Members of the Board of Directors,
As you know, CAS holds approximately 17% of At Home’s outstanding common stock and is currently the Company’s largest stockholder. This is why we hoped the Board would substantively engage with us following our initial outreach to you and Hellman & Friedman LLC (together with its affiliates and funds, “H&F”) last week. We are extremely disappointed that the Board ultimately chose to ignore our stated concerns regarding the proposed sale of At Home to H&F.
We are writing to you today to underscore that CAS intends to vote against the transaction as currently structured. If necessary, we are also prepared to take steps to prevent a sale to H&F under the present terms. Although this is not our preferred path, we will not sit idly by as the Board tries to push through a sale that we believe grossly undervalues the Company and deprives stockholders of anything resembling a fair premium.
The Current Transaction Terms Fail to Account for the Company’s Recent Business Improvements and Long-Term Growth Runway
Based on our most conservative analysis, H&F’s implied purchase price is a mere 12.9x fiscal year 2023 adjusted earnings.1 This valuation is based on the extremely conservative assumption that all of the significant gains across At Home’s business between fiscal year 2019 and Q1 fiscal year 2022 reverse by fiscal year 2023. Under this assumption, At Home’s revenue per store will have regressed to its prior trendline ($7.5 million per store) and the Company’s adjusted EBIT margins excluding store opening expenses will have dipped back to fiscal year 2019 levels of approximately 13.1%.2
It is important to stress just how pessimistic the “revert to 2019” case is. This case essentially writes off the many improvements at the Company in recent years, including the following:
- Millions of consumers have discovered At Home based on unaided brand awareness increasing from 15% to 19% over the course of fiscal year 2021.3
- The Company’s Insider Perks loyalty program, which had zero members in August 2017, grew by approximately 2.6 million to approximately 9.1 million members over the course of fiscal year 2021.4
- The Company has gone from a non-existent e-commerce presence in fiscal year 2019 to a robust one that now enables customers to execute online purchases and arrange for in-store pick-up or direct delivery.5
- The Company substantially improved the merchandizing of its unique offering with the introduction of EDLP+.
- The Company has expanded its direct sourcing from practically no direct sourcing in fiscal 2018 to 15% at the end of fiscal 2020 to nearly 20% at the end of fiscal 2021, thereby driving hundreds of basis points of margin improvement on each item sourced directly while enhancing product quality.6
- The Company’s growing store footprint and larger customer base has increased its purchasing scale and corporate leverage.
- Many of the company’s competitors have reduced their store footprints or permanently shuttered, including Pier 1, JC Penny and Bed Bath & Beyond.
As the Board should be well aware, 12.9x earnings represents a significant discount to the broader market and most other retailers and a yawning discount to the market price for healthy, growing retailers with long runways. All of these factors have led us to a clear conclusion: while this looks like a great deal for H&F, it represents a slap in the face to stockholders.