By Svea Herbst-Bayliss
BOSTON (Reuters) - Hedge fund Honest Capital said on Tuesday that it opposes a $2.8 billion deal that At Home Group (NYSE:HOME) Inc signed last week to sell itself to private equity firm Hellman & Friedman, even as the U.S. home goods retailer searches for a higher bid.
Honest Capital wrote to the company's board of directors to argue the $36-per-share all-cash deal was too low a valuation for At Home, given that it has plans to more than double its number of stores to 600 and consumers have more cash to spruce up their decor. Home decorating trends are expected to be fueled by low mortgage rates, continued housing demand and a trend for ongoing work from home after the pandemic.
"The proposed acquisition price of At Home is materially inadequate," Shawn Badlani, Honest Capital's managing partner wrote in the letter reviewed by Reuters. He did not disclose how much of At Home Honest Capital owns.
A representative for the company did not immediately respond to a request for comment. Hellman & Friedman also did not immediately respond for comment.
At Home has negotiated a 40-day "go shop" period with Hellman & Friedman that allows it to solicit bids from other potential buyers. Its stock price jumped 20% to close at $37.69 after the deal announcement on Thursday, suggesting some shareholders expected a better deal. The shares ended trading at $36.30 on Monday, still above the deal price.
Badlani, who had been a partner at activist investor Mick McGuire's Marcato Capital Management for nearly a decade, founded Honest Capital in 2020. Since its launch, Honest Capital has returned a net 109.6% largely by betting on smaller, less-recognized stocks.
In the letter, Badlani argued that At Home's management is on track to deliver strong returns and that the company could be worth as much as $10 billion, based on expansion plans and revenue estimates.
He also pointed to the fact that the company's management could earn big compensation packages in case of a change of control, questioning executives' alignment with shareholders' best interests.