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How going private helped BJ’s change its game

THIS STORY APPEARED IN

February 19, 2012|By Jenn Abelson

A California equity firm took BJs private last year. (Kayana Szymczak for The…)

Customers at BJ’s Wholesale Club Inc. stores probably haven’t noticed any big changes in the discount chain’s aisles, but a few months ago a major transformation took place at the Westborough-based company. BJ’s, long publicly traded, left the scrutiny of Wall Street after being acquired by a private equity firm. It took a year and a half to close the $2.8 billion deal, and from the moment it was known BJ’s had a suitor, executives scrambled while employees worried about their jobs. “There were a lot of questions, a lot of anxiousness. We were all tied to our BlackBerrys, Googling who’s who and who’s that,” said Diane Mareira, a general manager at the Northborough store who has worked at BJ’s for 27 years.

This is a behind-the-conference-room-door look at the sometimes tense process that led to the company’s sale.

Just before the July 4 weekend two years ago, Herb Zarkin, chairman of BJ’s Wholesale Club, was surprised to find out that a California private equity firm had acquired 9.5 percent of the merchant’s outstanding stock and wanted to buy it outright.

Five minutes later, Zarkin heard from Jonathan D. Sokoloff, a managing partner at the firm, Leonard Green & Partners, and an acquaintance for more than 20 years.

“I asked him what happened. Usually, these firms make overtures, build up a relationship behind closed doors, and convince us that shareholders and management are better off if the company goes private,’’ Zarkin said recently in his first comments on the matter. “This was very unusual. It’s almost hostile.’’

Sokoloff explained that Leonard Green in the past had spent a lot of time and energy on backroom negotiations with other companies - talks that ended up going nowhere. This time out, he told Zarkin, Leonard Green saw an opportunity and didn’t want to miss out on it.

“We thought the stock market was not fully appreciating how BJ’s changed its business model,’’ Sokoloff said in a recent interview. “Our hope all along was to buy the company. But if we were not successful, and the stock went up because it was undervalued, or because someone else bought it, we would at least ensure that we had a profitable investment.’’

Wall Street welcomed Leonard Green’s interest - BJ’s stock soared about 18 percent that day to close at $43.54.