Kohlberg Kravis Roberts & Co. L.P. (NYSE: KKR) and Clayton, Dubilier & Rice are reportedly interested in taking PetSmart private for over $7.5 billion. Based on Tuesday’s closing price of $73.61, the company has a market cap of $7.31 billion. Reportedly, Apollo Global Management LLC (NYSE: APO) and BC Partners are also considering offers for the company.
PetSmart reported its third-quarter results as $1.02 in earnings per share and $1.74 billion in revenue, against a Thomson Reuters consensus estimate of $0.94 in earnings per share. These earnings helped propel the share price up even further, giving the company an even better valuation.
The largest stakeholders in the company reported at the end of September were:
- Jana Partners controlled 9.7 million shares. or 9.76% outstanding.
- Longview Asset Management controlled 8.9 million shares, or 8.99% outstanding.
- The Vanguard Group controlled 7.5 million shares or 7.53%.
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24/7 Wall St. covered the potential buyout in September when Bank of America Merrill Lynch said there is “no doggone way PetSmart gets taken out.” The firm went back to a formal Underperform rating after having previously dropped it from coverage.
The report from Merrill Lynch signaled that fundamentals and new initiatives laid out by management are negative. These included cost reductions and broadening of mass food and omnichannel expansion, and the analysts feel the efforts are insufficient to turn around the business. Another view is that the sheer number of initiatives being simultaneously pursued only will increase the execution risks as it faces a number of structural and self-inflicted headwinds that helped to create three quarters of negative traffic.
However, since that time PetSmart shares have soared to 52-week highs, as recently as Tuesday, and Wednesday’s early trading was up as high as $77.20, versus a previous 52-week trading range of $55.00 to $75.44.
Shares of PetSmart closed Tuesday basically even at $73.62. Be advised that the stock has a consensus analyst price target all the way down at $65.56, but those targets are generally on a standalone valuation analysis rather than what a private equity buyout might see them worth.
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