Why is the Bed Bath & Beyond Stock Price up 261%?

Key Points

• The BBBY stock price has been on an incredible run these past few days.
• This comes amid rumors that the company could be the target of an M&A deal.
• The rumors hinge on a theory relating to some of its filings with the SEC not being released yet to be public.

The Bed Bath & Beyond NASDAQ: BBBY stock price has been on an enormous rally over the past five days by all accounts, it looks set to continue.

The troubled retailer's share is up 261.38% over the past five days. Yesterday shares rose to 50.14% amid a flurry of trading volume seen on the green candles as bears scrambled to cover their shorts. Short interest is still not being let down, with 49.04% of its float sold short at the time of writing.

This rally is despite the company tentatively approaching the subject of its impending bankruptcy, reported Bloomberg this morning. People with knowledge of the matter believe the firm is arranging finance that would cover its insolvency proceedings.

BBBY has publicly stated that it's exploring "multiple paths" to get its act together on behalf of shareholders. So let's explore what the result of taking two of those paths could look like for it moving forward.

BBBY could be acquired

One theory that was kicked around in a Reddit thread recently is that BBBY could become the target of an M&A takeover bid, which gained significant traction in the r/BBBY community.

Part of this theory hinges on BBBY's filing of its NT 10-Q form, which can be a common precursor to announcing a potential merger or acquisition. More broadly, it also allows the company to apply for more time before submitting its earnings, such as having its results audited.

The author also said that on the surface, there's no reason for these S-4 forms to be kept private since the termination of the bond exchange program is public knowledge and no longer relevant. Thus, it was surmised that these forms are being kept under a confidential treatment order (CTO), which can be used sometimes when the company is being acquired.

A smoking gun?

It should be noted that this is just the author's speculation and personal opinion, but it was convincing enough for the post to earn over 1,400 upvotes. These filings are still yet to be released to the public at the time of writing.

The other parts of this thesis are that two of the S-4 forms that BBBY filed on Dec 6 and Dec 20 have not yet been released by the SEC to the public.

The same form types were previously filed to inform the market of extensions of its bond exchange program. However, S-4s are compulsory filings for companies to make when announcing material information relating to M&A deals.

If the scenario arises that BBBY is acquired, what tends to happen in these situations is that the stock price of the company that's being bought out rises or falls to the amount offered per share by the buyer. So if the buyer offered BBBY $3 per share to buy all of its remaining stock, the BBBY stock price would then move to around the $3 level in the trade as its logical valuation.

What happens if BBBY goes bankrupt?

Another alternative is that BBBY could end up facing bankruptcy.

When a company goes bankrupt, its stock price will usually drop to zero. This is because the company’s stock is now essentially worthless, with no future prospects. The company's stockholders will usually receive no money from the liquidation or restructuring of the company, and their only hope of recouping their losses is if the company successfully reorganizes and emerges from bankruptcy. However, this is not very likely.

In some cases, when a company goes bankrupt, its stock may not drop to zero and may even temporarily increase. This can happen if the company’s assets are sold off for more than expected, and the company’s creditors receive more money than anticipated. This can create a “bump” in the stock price, but it is usually only a temporary increase, and the stock will eventually drop to zero.

If an M&A deal was due to be announced, we might have seen it when BBBY last announced its most recent earnings. This doesn't explain why these S-4 forms have been kept from the public - but we may not need to wait long to find out.