Bed Bath & Beyond explodes by more than 25% after activist investors attack

Getty/Kevork Djansezian

• Three activist hedge funds have launched a proxy contest against Bed Bath & Beyond.
• The hedge funds seek to replace CEO Steven Temares and the company's board.
• Shares of the home-furnishings retailer rocketed higher nearly 30% on the news.
• Watch Bed Bath & Beyond trade live.

Ancora Advisors, Legion Partners Asset Management, and Macellum Advisors are leveraging their combined 5% stake in Bed Bath & Beyond to launch a proxy context to replace the retailer's CEO and entire board of directors. The heavily shorted stock was up more than 25% on the news.

CEO Steven Temeres has led the company since 2003 and is backed by founders Leonard Feinstein and Warren Eisenberg, who remain shareholders and co-chairmen of the board.

The retailer has struggled to keep pace with online competitors and the investor group has contended that it has failed to adapt to the new retail environment while allowing costs to increase and margins to shrink, Fox Business says, citing people familiar with the matter.

In a research note published Thursday, Raymond James said a private equity take-out makes sense for a number of reasons including governance issues, low inside ownership, and out of the money stock options. Analysts Bobby Griffin and Budd Bugatch also showcased a financial model which indicated a leveraged buyout of the company was feasible. Raymond James updated its rating to "strong buy" and price target to $20 given the activist investor interest. Shares were trading near $17.50 apiece on Tuesday morning.

However, Morgan Stanley analyst Simeon Gutman advised investors to remain cautious. Gutman cited margin pressure from the industry's e-commerce shift and commensurate store traffic declines which will make it difficult to change Bed Bath & Beyond's trajectory of weakening margins. Gutman maintained an "underweight" rating and $13 price target.

Prior to Tuesday's gain, BBBY shares were down 35% over the past 12 months.

Business Insider