PetSmart Inc. agreed to sell itself for approximately $8.7 billion to a group led by the London-based private equity firm BC Partners.
PetSmart has long been seen as a good target for private equity firms, given its relatively low debt and strong cash flow. Generally, private equity firms finance the majority of the purchase price with borrowed money in a leveraged buyout.
PetSmart operates over 1,300 pet stores Puerto Rico, Canada and in the United States.
In August, the retailer disclosed that it was exploring a sale after the big activist investor, Jana Partners, emerged as a major shareholder. PetSmart had already been mulling over its strategic options as its sales had begun to decline in recent months.
By this time, Longview Asset Management and Jana had begun agitating for a sale of the pet supply company. Currently, Jana Partners has a stake of 9.75 percent.
According to the deal’s terms, the consortium will pay approximately $83 a share in cash, around 6.8 percent higher than PetSmart’s closing price on Friday and approximately 39 percent higher than the closing price on 2nd of July - which was the day before Jana Parteners, emerged as a shareholder.
PetSmart’s chairman, Gregory P. Josefowicz said that they are pleased to have reached this agreement with BC Partners, which maximizes value for all of their shareholders and best positions PetSmart to continue to meet the needs of pet parents. He further stated that this transaction represents the successful conclusion of their extensive review of strategic alternatives.
BC Partners, by teaming up with its limited partners, which includes a pension fund, the firm was able to collectively collect enough money to finance the deal without having to join with a rival firm.
The deal is expected to be completed by the first half of next year, pending approval from regulators and shareholders.