(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 stock cratered after a fleeting surge during the pandemic daytrading frenzy.
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A Florida investor was quietly snapping up the company’s stock, buying so much that by Monday he disclosed owning a more than 18% stake — making him the second-biggest shareholder after Leonard Green & Partners, the Los Angeles private equity firm.
The move set off alarms at The Container Store’s headquarters: On Tuesday, the company announced that it enacted a so-called poison-pill provision, a method used to ward off unwanted takeovers by making them prohibitively expensive, after the “rapid and significant accumulation” of its shares by a single stockholder.
But it turns out Amit Agarwal is no would-be Carl Icahn. He’s a 41-year-old former patent litigator in St. Petersburg, Florida, who works out of the local Subway sandwich shop and likes placing big bets in the stock market and at the poker table. He’s put down $8 million wagering there’s solid potential in the financially struggling retailer — especially if a real buyout artist comes out of the woodwork.
“There’s a gem inside this pile of mess and it will shine brightly enough to capture a buyer’s attention,” he said.
But, he added: “I could be wrong.”
The Container Store, a nationwide chain known for its closet organizers, storage shelves and container bins, has stumbled so badly that even a hobbyist like Agarwal was able to buy a big piece of it. Its stock surged during the Covid lockdowns — when amateur investors were piling into companies that were expected to benefit — only to tumble some 96% since March 2021, cutting its market value to less than $40 million.
The company is now contending with a difficult combination: declining revenues, a run of losses and a wall of debt that’s maturing in 2025 and 2026. In May, the company said it hired Latham & Watkins and JPMorgan Chase & Co. to consider strategic alternatives, which typically involves soliciting takeover offers or mulling other steps to deal with financial distress.
On Wall Street, the few analysts who still track the company are skeptical of its prospects: One advises selling the shares; the other two deem it a hold. None are suggesting clients buy it. In July, S&P Global Ratings downgraded The Container Store to CCC+, deep into junk grade, seeing mounting risks it will be pushed to default on its debts.
A spokesperson for The Container Store declined to comment.
Agarwal said he would step up to buy the company outright if he could, largely because of the potential he sees in its Elfa line of products, which includes shelving and wardrobe organizers. Unfortunately, he doesn’t have that kind of money and investing isn’t his professional vocation.
He studied law at University of California, Berkeley, and after a stretch working as a lawyer started placing stock-market bets based on ongoing cases. He’d fly to small East Texas towns to hear arguments and make a call on who he thought would win.
“I’d go to court and try to Moneyball patent lawsuits,” he said.
Owning his Florida condo outright, Agarwal figures all he needs to keep himself in a solid lifestyle for good is roughly $1.5 million of cash. So he has been making bets with the rest of his money, seeing little personal downside if he loses it.
‘Very Expensive Lesson’
He said his previous wagers on Big 5 Sporting Goods Corp., a California-based retailer, and Torrid Holdings Inc., an apparel company, worked out well, netting millions.
He’s also had missteps, saying he got his “head cut off” after following investors like the late Charlie Munger into Alibaba Group Holding Ltd, the Chinese internet company.
Before buying his Container Store shares, Agarwal says he spent a lot of time poring over its earnings history and reading reviews of its products online. He also followed discussions on home organizing Reddit threads and lingered around its outlet in central Florida.
As he waits for his wager to play out, he has been filling 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 as of Wednesday had left town, like a lot of others, before Hurricane Milton bore down.
He’s prepared for a worst-case scenario with his Container Store shares, too. But even if he does lose money, he says he’ll get a refund on previous capital-gains tax payments.
“If it goes bust, I’ll pay a lot of tuition for a very expensive lesson, but I have to act at scale when a good asset is staring me in the face and it’s trading at nothing,” he said. “It’s like getting dealt pocket aces.”
--With assistance from Crystal Tse.
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