PetSmart Invites Private Equity Firms to Final Round of Bidding

PetSmart, Inc. (NASDAQ:PETM) invited some private equity firms to a final round of bidding for a leveraged buyout, according to Wall Street Journal based on information obtained from people familiar with the situation.

The private equity firms invited by PetSmart, Inc. (NASDAQ:PETM) include Apollo Global Management LLC (NASDAQ:APO), KKR & Co. L.P. (NYSE:KKR), BC Partners Limited and Clayton, Dubilier & Rice, Inc.

According to the sources, the management of the pet-supply retailer asked the private equity firms for a meeting and to submit their second-round of proposal until December 4.  PetSmart, Inc. (NASDAQ:PETM) intends to announce the winning bidder in the middle of December.

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PetSmart is under pressure to explore a sale

The shareholders of PetSmart, Inc. (NASDAQ:PETM)  including  Jana Partners, the activist hedge fund managed by Barry Rosenstein  and Longview Asset Management are pressuring the management to explore a sale of the company.

In July, Jana Partners sent a letter to the management of the pet-supplier retailer emphasizing that “a sale very likely offers the highest possible risk-adjusted return for shareholders.”

In the letter, the activist hedge fund also quoted a statement from Longview Asset Management indicating that “Petsmart is likely to be valued much more highly by private market participants than by its current public market investors.”

Jana Partners explained that a private equity firm is willing to pay shareholders based upon confidence on its ability to create value. It can also take advantage of a highly attractive financing market. The activist hedge fund emphasized that confidence is justifiable absent among the current investors of PetSmart.

PetSmart, Inc. (NASDAQ:PETM) has a market capitalization of approximately $7 billion. Market observers suggest that private equity firms will likely form a consortium to take the pet-supply retailer private. A leverage buyout of the company is expected to be the largest this year based on data from Dealogic.

PetSmart stock rating upgraded to Hold

Deutsche Bank analyst Mike Baker upgraded his stock rating for PetSmart, Inc. (NASDAQ:PETM) from Sell to Hold and raised his price target from $60 to $74 per share.

In a note to investors, Baker suggested that PETCO Animal Supplies could acquire PetSmart for $85 per share. According to him, a leveraged buyout by an entity outside the pet retail space could only value PetSmart at around $70 per share, in-line with its current stock value.

PetSmart, iNc. (NASDAQ:PETM) is trading at $72.73 per share, up by 1.52% at the time of this writing around 1:42 in the afternoon in New York.