After becoming a meme-stock favorite earlier this year, Bed Bath & Beyond shares tumbled on Wednesday, set off by a sudden turnabout from an activist investor.
The investor, Ryan Cohen, made a filing on Monday describing his options to purchase the retailer’s shares at sky-high prices that sent the stock soaring as much as 70 percent.
Then on Wednesday, he filed a registration document that would allow him to sell all of his 10 percent stake in the company. Investors reacted by selling off stock, which was down about 22 percent in afternoon trading on Thursday.
So, what does this all mean?
A quick recap: In March, Mr. Cohen revealed that he owned a 9.8 percent stake in Bed Bath & Beyond and called for several changes at the company, including a sale of the Buy Buy Baby brand. The home-goods chain settled with him a few weeks later, adding three of his nominees to the board.
But the company’s situation hasn’t improved much since then:
Its chief executive, Mark Tritton, was ousted in June, net sales have continued to fall and supply chain snarls have dragged on.
It had a net loss of about $358 million in the most recent quarter and $140 million in cash on hand, down from more than $1.1 billion a year before.
As of last week, its shares had fallen about 40 percent since it announced its deal with Mr. Cohen.
Mr. Cohen has call options in Bed Bath & Beyond with astronomical strike prices of $60, $75 and $80 per share. (The stock closed at $23 on Wednesday.) He outlined those options when he disclosed his initial stake.
But after Bed Bath & Beyond bought back some shares, he ended up owning more than 10 percent of the retailer, qualifying him as a major shareholder. That required him to make a fresh disclosure outlining his stake in the company, which he did Monday night.
The filing, which detailed Mr. Cohen’s stock options, sent retail traders into a frenzy. They bought $73 million in Bed Bath & Beyond stock on Tuesday and flooded Reddit’s WallStreetBets board with memes urging Mr. Cohen on.
A representative for Mr. Cohen did not respond to requests for comment.
Now Mr. Cohen wants the ability to sell out. On Wednesday, his investment firm, RC Ventures, made a regulatory filing that is required of large shareholders who want to sell a chunk of their shares. (Experts note that Mr. Cohen may ultimately sell none, some or all of his stake.)
“Good for him,” said Daniel Taylor, a professor of forensic accounting at Wharton. “That’s prudent risk management, so that he can sell the shares if he wants to lock in the giant gain.”
Things might get into a gray area, Professor Taylor said, if Mr. Cohen had bought the stock and disclosed the calls solely to lift Bed Bath & Beyond’s share price and flip a profit. But that sort of intent would be hard to prove.
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