PetSmart, Inc. (NASDAQ:PETM) has been hiding poor results from investors claims the hedge fund Jana Partners LLC, who revealed in a regulatory filing  that they had obtained internal PetSmart documents regarding the allegations.


In a case of spy intrigue, Jana received an anonymous package from an apparent internal whistleblower that revealed the firm had “missed internal projections” and did not act in the best interests of investors, a report in the Wall Street Journal revealed.

Jana requested PetSmart to share the documents in question

Jana has formally requested PetSmart, Inc. (NASDAQ:PETM) “promptly” share the documents in question with shareholders, the hedge fund said in a letter to PetSmart, signed by Jana’s sometimes controversial and often aggressive activist founder Barry Rosenstein.

Rosenstein redacts certain confidential information where “portions of such may be deemed by you to be competitively sensitive.”

Jana identified what it considered sensitive and then provided PetSmart time to review the documents, providing a “High-Noon” movie moment.  Rosenstein said either PetSmart, Inc. (NASDAQ:PETM) reveal the documents publicly, redacting what it considered “sensitive” information, or that Jana would do the deed. In the movie “High-Noon,” a small town Marshall facing a gang of criminals was faced with a tough decision at a given point in time, one that if he didn’t make would be made for him.

Jana acknowledges it was unfamiliar with accuracy of the evidence

In its regulatory filing, Jana acknowledged it was unfamiliar with the source or authenticity or accuracy of the evidence and related statements, but the hedge fund was giving PetSmart fair warning of its intentions.

It is unclear what the motivate of an PetSmart, Inc. (NASDAQ:PETM) insider might be to supply the information to Jana.

As previously reported in ValueWalk on several occasions, activist hedge fund Jana Partners has been urging the firm to sell itself.   The activist hedge fund owns 9.8% stake in the company and a sale “very likely offers the highest risk-adjusted return for shareholders” given the chronic underperformance of PetSmart, Inc. and significant private equity interest in the company, reports a month ago indicated.

PetSmart lagged its peers in shareholder value creation

Jana, with over $10 billion under management, has repeatedly emphasized that PetSmart, Inc. (NASDAQ:PETM) lagged its peers in “shareholder value creation,” which means its earnings misses were upsetting investors.  In various investor letters, Jana has painted a picture that current management is the issue and has downplayed price-conscious online competition in the pet supply business.

Using a technical overlay on top of Jana’s fundamental analysis to decode price movement, the recent move to new highs does not appear to be confirmed. Momentum indicators indicate that algorithmic selling is taking place, with the forward looking indicators providing early buy and sell signals before major events of the past several months.