Kirkland’s, Beyond enter strategic partnership

Kirkland’s (KIRK) and Beyond (BYON), owner of Bed Bath & Beyond, Overstock, Zulily, and other online retail brands designed to unlock your home’s potential, announced that they have entered into a strategic partnership that will enable cohesive collaboration, leveraging the strengths of each business to drive sustainable profitable growth and value for all stakeholders. Each company will enhance the revenue and earnings potential for both businesses through the following initiatives: Kirkland’s to become Beyond’s exclusive brick-and-mortar operator and licensee for new, smaller format (up to 15k square feet) ‘neighborhood’ Bed Bath & Beyond locations nationwide, highlighting a curated assortment of iconic legacy vendor partners while also leveraging Kirkland’s store operations expertise and its brick-and-mortar footprint to identify potential store conversion opportunities or new markets. Capitalizing on Kirkland’s merchandising, product development and sourcing teams to expand the reach of Kirkland’s Home product assortment, including furniture, rugs and textiles as well as its industry leading core decor business, across the expanded store network, Beyond’s websites and other marketplaces. Leveraging an enhanced supply chain network to reduce costs, improve inventory management, and drive revenue growth. Kirkland’s to participate in Beyond’s consumer data collective, global loyalty program, financial services, and consumer protection products, with the expectation to drive traffic and revenue while increasing conversion and lower both customer acquisition and retention costs. Beyond to support Kirkland’s digital transformation to drive improvements in e-commerce technology to improve customer experience and conversion driving profitable revenue growth in this channel.On October 21, 2024, Kirkland’s entered into a $17 million Term Loan Credit Agreement with Beyond, $8.5 million of which consists of a convertible note that will convert into Kirkland’s common stock at a price of $1.85 per share upon the approval of Kirkland’s shareholders. Prior to receiving shareholder approval, Beyond may elect to convert a portion of the convertible note into up to 2,609,215 shares at the Conversion Price. In addition, on October 21, 2024, the parties entered into a subscription agreement pursuant to which Beyond will purchase an additional $8 million of Kirkland’s common stock at the Conversion Price upon the approval of Kirkland’s shareholders. The parties also entered into a seven-year collaboration agreement, pursuant to which Beyond will earn a collaboration fee equal to 0.25% of Kirkland’s quarterly retail and e-commerce revenue starting in Kirkland’s first fiscal quarter of fiscal 2025 for the remaining term of the Collaboration Agreement and an incentive fee equal to 1.5% of Kirkland’s incremental growth in e-commerce revenue during the term of the Collaboration Agreement. Additionally, the parties entered into a trademark license agreement, pursuant to which Beyond will earn a store royalty fee equal to 3% of net store sales generated under the Bed Bath & Beyond banner during the term of the Collaboration Agreement, with that rate increasing to 5% of net store sales after the Collaboration Agreement has terminated, if the locations are still operating. Proceeds from the term loan portion of the transaction will be used by Kirkland’s to repay its existing term loan with Gordon Brothers, including prepayment fees, transaction expenses, and to reduce borrowings under Kirkland’s existing revolving credit facility with Bank of America, N.A. Following the closing of the common stock purchase under the Subscription Agreement, Beyond will have a right to nominate two directors to Kirkland’s Board of Directors, each of whom shall qualify as independent directors for Nasdaq listing purposes. This right will remain in place as long as Beyond owns at least 20% of Kirkland’s outstanding common stock. Beyond will have the right to designate one person for appointment to Kirkland’s Board of Directors as long as it continues to own at least 5% of Kirkland’s outstanding common stock. The equity purchase and the mandatory debt conversion are both subject to the approval of Kirkland’s shareholders in accordance with Nasdaq Listing Rules and other customary closing conditions. There can be no assurance that those portions of the transaction will be consummated. Osmium Partners, who owns approximately 9% of Kirkland’s shares outstanding, has committed its support for the transaction and has agreed to support the transaction at the upcoming Kirkland’s special meeting of shareholders.