It looks like Barry Rosenstein can put another notch on his bed post, as PetSmart, Inc. (NASDAQ:PETM), the subject of his recent desire, appears to be succumbing to his relentless advances.
PetSmart exploring strategic alternatives
A Goldman Sachs report out yesterday hiked its target on PetSmart, Inc. (NASDAQ:PETM) to “contextualize M&A scenarios,” as the retail chain announced it is exploring strategic alternatives, including the sale of the company.
As previously reported in ValueWalk on several occasions, Jana Partners, the activist hedge fund run by Rosenstein, which took a 9.8 percent stake in the firm, had “requested” that PetSmart “review its options,” including selling itself to enhance shareholder value.
In light of the willingness to find buyers, Goldman Sachs upped its 12-month price target from $62 to $68 per share. The basis for the investment bank’s analysis is 85 percent based on a fundamental valuation of $67 per share for the firm considering traditional risk, reward and earnings analysis. The price target is 15 percent based on a $72 per share valuation in a buyout or merger scenario, according to an investor letter reviewed by ValueWalk. The stock is currently trading near $69.66.
What the staid Goldman analysis predictably didn’t include was discussion of recent intimidation tactics used by Rosenstein.
Based on his past work, Rosenstein was operating out of his standard operating manual for pressuring his target to succumb to his plan.
“Everyone has their own approach (to activist investing),” Rosenstein once said when describing his strategy in a ValueWalk report. “I’m happy to be friendly as long as the company does what I want them to do. That defines our relationship with management. In the last seven deals I called the CEO, laid out for them what I thought they needed to do, and they just did it. They didn’t want to fight. I think it’s a good evolution (for companies to be compliant to the wishes of activists).”
Rosenstein’s activism against PetSmart
In the case of PetSmart, Inc. (NASDAQ:PETM), Rosenstein contacted the retailer behind the scenes and then made his demands public twice. When PetSmart apparently wouldn’t give in, Rosenstein got aggressive.
When companies disagree, they have alternatives, he said. If you don’t follow his plans, “The alternative is you can fight me,” the activist hedge fund manager said, outlining the options given to CEOs he targets. If the company CEO does not submit “then you will go through a very public (and potentially damaging) campaign. You’re going to end up making the same changes anyway and be viewed as weak and dragged to the finish line. So take your choice,” Rosenstein said, give in to the activist or fight.
As reported in ValueWalk, Jana recently went public with a “High Noon” threat. The hedge fund obtained PetSmart internal documents that might be embarrassing to management. Jana sent a letter to PetSmart and said it might take the documents public.
While there is no documented link between Rosenstein’s threat and PetSmart, Inc. (NASDAQ:PETM)’s actions, they recently announced the willingness to discuss “strategic options,” which, other than the sale of the company, included a purchase of an online retailer and other methods to boost sales.
While the real story has yet to be discussed in mainstream media or brokerage analysis, the behind the scenes intimidation strategy appears to be working overtime at Jana.