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Bed Bath & Beyond

(BBBY) - Get Bed Bath & Beyond Inc. Report

is buying home furnishing and entertainment retailer

Cost Plus


for $22 a share in cash or nearly $500 million, a 22% premium to the company's Tuesday close.

The deal will give Bed Bath & Beyond the private label home furnishing brands and designs sold by Cost Plus. It will also give Bed Bath & Beyond ownership of a business it has partnered with and that has returned to profitability after successive loss-making years during the recession pushed shares below $1.

For Cost Plus, the sale highlights an epic recovery. The Oakland, Calif-based company, which had faltered even before the onset of the financial crisis and the Great Recession, saw its shares plunge below a dollar in 2009 amid $100 million-plus losses and high debt levels. However, as the company pared its debt in recent years and returned to profitability, shares have surged.

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In 2011, Cost Plus recorded revenue of $963 million, a post-crisis high that helped to drive a $16.5 million annual profit. Meanwhile, the company's cut its total debt from nearly $200 million to $116 million as of the first quarter, which Bed Bath & Beyond will take on as a result of the deal.

"We are thrilled about the prospects of welcoming the Cost Plus team and their customers and vendors to the Bed Bath & Beyond family," said Bed Bath & Beyond chief executive Steven H. Temares in a statement. "Through the combination of the highly talented Cost Plus organization with our own dedicated associates, we expect to be able to do even more for, and with, our collective customers."

Cost Plus World Market, which was launched in San Francisco's Fisherman's Wharf, has 259 retail outlets in the U.S. and has partnered with Bed Bath & Beyond on previous store-within-a-store concepts.

The deal, which is expected to close in Bed Bath & Beyond's fiscal second quarter has been approved by both company's boards, in addition to

Red Mountain Capital Partners


Stephens Investment Holdings

, Cost Plus's two largest shareholders with a combined stake of roughly 26% of the company's shares.

On news of the deal, Cost Plus shares rallied nearly 22% to $21.89, just below Bed Bath & Beyond's offer price. That Wednesday stock surge put Cost Plus shares up nearly 125 % in the last 12 months. Bed Bath & Beyond shares were little changed at $68.34 in early trading after the deal announcement, recovering from a share slump at the market open.

Union, NJ- based Bed Bath & Beyond said that the deal will be slightly accretive to its 2012 earnings per share, after accounting for synergies and transaction costs. The company, which grew sales roughly 10% to $9.5 billion and profits roughly 25% to $990 million in 2011, expects that after the deal, it will post high single digit to a low double digit earnings growth in 2012.

Bed Bath & Beyond also said it would fund the acquisition with available cash on its balance sheet and that the deal won't alter its plans to repurchase shares by the end of 2012.

-- Written by Antoine Gara from New York.