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Bed Bath & Beyond Faces ‘Severe’ Fallout if Stock Plan Fails

Shareholders voting against Bed Bath & Beyond’s proposed reverse stock split would unleash “specific and severe” consequences, a key proxy advisory firm wrote in a report on Monday.

Institutional Shareholder Services, a leading independent corporate governance firm, weighs in on proxies and issues ‘yay’ or ‘nay’ recommendations for upcoming shareholder votes.

Bed Bath & Beyond’s statement on the ISS report said the proxy firm encouraged shareholders to vote “FOR” all of the home goods retailer’s proposals at the upcoming special shareholders’ meeting on May 9 centered on its proposal for a reverse stock split.

The plan allows for equity financing, which gives Bed Bath & Beyond a way to raise much-needed capital and potentially stave off a bankruptcy collapse.

ISS said shareholders should greenlight Bed Bath & Beyond’s proposals because the company “has not demonstrated imprudent use” of its authorized shares in the past three years. The stock plan, it said, would help the cash-strapped company raise enough capital to continue its turnaround.

“We are seeking shareholder approval for a reverse stock split to continue raising the necessary capital to fulfill our business goals,” Bed Bath & Beyond CEO Sue Gove said Monday.

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In a regulatory filing with the Securities and Exchange Commission, the planned stock ratio has a target “range of 1-for-10 to 1-for-20.”

Whether the retailer can meet enough capital is up for debate. A successful last-ditch effort would be a plus for Bed Bath & Beyond because it wouldn’t have to repay investors should it eventually go bankrupt. And if equity financing buys Bed Bath & Beyond enough time to come up with a game plan to avoid bankruptcy, the capital raise means the retailer won’t add any additional financial burdens to its balance sheet, although it would lose some of its control and profits since it now will own fewer shares.

Shares of Bed Bath & Beyond closed at 29 cents on Monday, but rose 6.5 percent to the 32-cent range in Tuesday morning trading following news of the ISS report.