(Bloomberg) — It had all the hallmarks of a corporate raider gearing up for a hostile takeover of The Container Store Group Inc., a home goods retailer whose shares tumbled after surging during the pandemic day-trading frenzy.
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A Florida investor has been quietly buying up the company’s stock, buying so many that on Monday he announced he owns a stake of more than 18%, making him the second-largest shareholder behind Leonard Green & Partners, the privately held equity firm from Los Angeles.
The move caused alarm at The Container Store’s headquarters: On Tuesday, the company announced that it had introduced a so-called poison pill provision, a method used to ward off unwanted acquisitions by making them prohibitively expensive, after the “rapid and significant accumulation ” of its shares by a single shareholder.
But it turns out that Amit Agarwal is not a would-be Carl Icahn. He is a 41-year-old former patent attorney in St. Petersburg, Florida, who works at the local Subway sandwich shop and enjoys placing big bets on the stock market and at the poker table. He has bet $8 million on the hunch that there is solid potential in the financially struggling retailer, especially if a real buyout artist comes out of the woodwork.
“There is a gem in this pile of junk and it will shine bright enough to catch a buyer’s eye,” he said.
But he added: “I could be wrong.”
The Container Store, a national chain known for its closet furnishings, storage shelves and container bins, has been so badly damaged that even a hobbyist like Agarwal was able to buy a large chunk of it. Share prices soared during the coronavirus lockdowns – as amateur investors piled into companies expected to benefit – before plunging some 96% since March 2021, sending the market value down to less than $40 million.
The company now faces a difficult combination: declining revenues, a string of losses and a pile of debt maturing in 2025 and 2026. In May, the company said it would acquire Latham & Watkins and JPMorgan Chase & Co. had hired to consider strategic alternatives. , which typically involves making takeover offers or considering other steps to deal with financial problems.
On Wall Street, the few analysts who still follow the company are skeptical about its prospects: they recommend selling the shares; the other two regard it as something to hold on to. No one is suggesting that customers buy it. In July, S&P Global Ratings downgraded The Container Store to CCC+, deep into junk grade, amid growing risks that the company could default on its debt.
A spokesperson for The Container Store declined to comment.
Agarwal said he would acquire the company if he could, largely because of the potential he sees in the Elfa product line, which includes shelving and wardrobe organizers. Unfortunately, he doesn’t have that kind of money and investing is not his professional calling.
He studied law at the University of California, Berkeley, and after working as a lawyer for a while, he began making stock market bets based on current cases. He flew to small towns in East Texas to hear arguments and make calls on who he thought would win.
“I would go to court and try to file Moneyball patent lawsuits,” he said.
Agarwal owns his Florida condo and thinks all he needs to maintain a solid lifestyle for good is about $1.5 million in cash. So he has made bets with the rest of his money and sees little personal downside if he loses it.
‘Very expensive lesson’
He said his previous bets on Big 5 Sporting Goods Corp., a California-based retailer, and Torrid Holdings Inc., an apparel company, paid off and made him millions.
He also made missteps when he said he had his head chopped off after following investors like the late Charlie Munger into Alibaba Group Holding Ltd, the Chinese internet company.
Before buying his Container Store stock, Agarwal says he spent a lot of time studying its earnings history and reading reviews of its products online. He also followed discussions about organizing Reddit threads at home and hung out at the central Florida branch.
While he waits for his bet to play out, he fills his time playing poker at the Seminole Hard Rock Hotel & Casino in Tampa and doing pro-bono legal work on asylum cases. He lives with an epileptic English golden retriever named Niko and, like many others, had left town since Wednesday before Hurricane Milton hit.
He is also prepared for a worst-case scenario with his Container Store shares. But even if he loses money, he says he’ll get back previous capital gains tax payments. On Thursday, the stock price fell more than 4% to around $10.40, giving back some of the previous day’s gains.
“If it goes bankrupt, I’ll pay a lot of tuition for a very expensive class, but I’ll have to trade on a large scale when a good asset is staring me in the face and it’s trading for nothing,” he said. “It’s like being dealt pocket aces.”
–With help from Crystal Tse.
(Refreshes the stock quote in the penultimate paragraph.)
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