Bed Bath & Beyond Inc. said Wednesday that it agreed to buy smaller home goods retailer Cost Plus Inc. for about $495 million after getting promising results from a joint effort to put a specialty food department in some Bed Bath & Beyond stores.
Bed Bath & Beyond said Wednesday that it will pay $22 for each Cost Plus share, a 22 percent premium to its closing price on Tuesday. Shares of Oakland, Calif.-based Cost Plus rose $3.91, or 21.7 percent, to $21.90 in afternoon trading.
Cost Plus, which operates stores under the names World Market and Cost Plus World Market, currently has about 22.5 million outstanding shares, according to FactSet.
Cost Plus and Bed Bath & Beyond had been testing a specialty food department at some Bed Bath & Beyond stores for the past year and a half. The tests showed the departments "could help generate in-store traffic and sharpen the edge against online retailers," Cost Plus CEO Barry Feld said in a letter to employees on the Cost Plus Web site.
So called "big-box" stores of all stripes are facing stepped up competition from discounters and online retailers.
"Our successful merchandising and product collaborations over the last two years have demonstrated that our organizations work well together and that we can make key contributions to the continued success of the combined company," Feld added in a statement. No job cuts or store closures are expected.
Cost Plus started in 1958 as an imported goods store called Cost Plus World Market in San Francisco's Fisherman's Wharf. There are now 259 stores worldwide.
Bed Bath & Beyond was founded in 1971 and operates more than 1,000 stores under its own name as well as Christmas Tree Shops, Harmon, Harmon Face Values, and BuyBuy Baby in the U.S. It operates Home & More stores via a joint venture in Mexico.
In its most recent fiscal year net income climbed 25 percent on an 8 percent rise in revenue to $9.5 billion.
One analyst said the move was a good fit for both retailers.
"The transaction will expand Bed Bath & Beyond's consumables assortment into the gourmet food and beverage categories, while BBBY provides greater scale and capital structure to support Cost Plus' 259 stores," wrote Canaccord Genuity analyst Laura Champine in a note to investors.
Both companies' boards have unanimously approved the deal, which is expected to close during Bed Bath & Beyond's fiscal second quarter, which ends in August. The transaction will be funded with available cash.
Shares of Union, N.J.-based Bed Bath & Beyond fell 31 cents to $67.92 in afternoon trading.
AP Business Writer Michelle Chapman contributed to this report.