PetSmart agrees to be sold for $8.7 billion

From AZCentral.com

PetSmart Inc., Arizona's iconic pet-supplies retailer and one of the state's largest employers, has agreed to be sold for $8.7 billion.

The Phoenix-based company, feeling pressure in the increasingly competitive market for pet food and services, had been reviewing its options for the past several months. The purchase by a new ownership group could chart a different direction for a retailer that counts thousands of Arizona employees and tens of thousands of customers.

Its board agreed unanimously to a purchase by a consortium led by London-based BC Partners in what could be the largest private-equity deal of the year.

The investor group agreed to pay $83 a share, according to PetSmart's statement released Sunday. That's a premium of about 7 percent over Friday's closing price of $77.67.

With the sale, another homegrown public company will be controlled out of state. Arizona had six of the nation's largest publicly traded companies as tallied by the Fortune 500 in 2013. With PetSmart going private and US Airways merged with Fort Worth-based American Airlines, the state now has four.

A corporate headquarters can have a strong economic impact on a community. The companies generally pay well and support accounting, legal and other white-collar firms. Their executives often are involved in civic and charitable causes, as well.

Sunday's statement didn't provide any hint of possible changes in terms of services, stores, employees or other details, although a BC Partners executive said he looked forward to working with PetSmart management. PetSmart operates nearly 1,400 stores, with pet food accounting for about half its revenue. A spokesman didn't provide further details.

"This transaction is a testament to the strength of the PetSmart brand and franchise and reflects the dedication and commitment of our 54,000 associates to serving our customers and delivering value for our company and our shareholders," said David Lenhardt, PetSmart's president and chief executive officer, in a statement.

About half the company's employees are full time.

"The consortium led by BC Partners will be an excellent partner for PetSmart as we continue to implement our strategic plan to capitalize on our opportunities for growth and meet the needs of pet parents," Lenhardt said.

PetSmart's 54,000 employees include about 3,800 in Arizona, where PetSmart ranked as the 36th-largest non-government employer in this year's Arizona Republic 100. The company also places among Arizona's top half-dozen or so in key categories such as revenue, profits, stock-market capitalization or worth, and executive pay.

In addition to pet food and supplies, PetSmart provides grooming, boarding and veterinarian services in many locations. Its PetSmart Charities, which is active in placing cats and dogs for adoption, ranks among Arizona's largest non-profit groups.

BC Partners owns a portfolio of companies, primarily in Europe, that range from British car insurer Sabre to Migros, the biggest supermarket chain in Turkey, along with companies that make pumps and compressors and provide satellite services. Along with buyout specialist BC Partners, the consortium consists of several of its limited partners, including La Caisse de dépôt et placement du Québec and StepStone. Longview Asset Management, which owns or manages approximately 9 percent of PetSmart's outstanding shares, has committed to vote in favor, the statement said.

Longview will participate in the consortium with about one-third of its current holdings but will sell its other shares as part of the buyout.

In its statement Sunday, PetSmart said the purchase price represents a premium of 39 percent over its stock price just below $60 a share as of July 2, around the time the company said it would consider putting itself up for sale. PetSmart ranks as the nation's top retailer of pet food and supplies, but it has faced heightened competition from Walmart, Target, Amazon.com, various online retailers and boutique pet stores.

It sells about 12,000 distinct items in stores and another 8,000 or so at Petsmart.com and other online sites.

PetSmart's stock returned more than 30 percent in four consecutive years, from 2009 through 2012, but the gains slowed to single-digit levels over the past two years. In 2013, PetSmart stock greatly underperformed those of other specialty retailers tracked by Morningstar Inc. PetSmart's latest quarterly profit and same-store sales both were down slightly from year-earlier levels.

The sale requires shareholder and regulatory approval, the company said. The transaction is expected to close in the first half of 2015 and will be financed in part with debt.

PetSmart's chairman, Gregory Josefowicz, who is the former CEO of book retailer Borders Group, said in a statement that the deal maximizes value for all PetSmart shareholders, positions the retailer to meet the needs of customers and represents "the successful conclusion of our extensive review of strategic alternatives."

Other PetSmart directors include Joseph Hardin, former CEO of Kinko's, and Angel Cabrera, the former president of the Thunderbird School of Global Management and now the president of George Mason University.

Raymond Svider, a managing partner at BC Partners, said in a statement, "We look forward to working with management to continue growing PetSmart's business and executing against its recently announced strategic initiatives."

In August, PetSmart said it was weighing "strategic alternatives" after a months-long review by the company's board of directors. The Phoenix company faced pressure from shareholders, including Longview, who pushed for a sale.

In a conference call on Aug. 20, Lenhardt acknowledged that overall consumer spending was down and that the company was "operating in a more competitive market. Our customers have more choices for their pets' specialty needs."

In September, PetSmart cut 176 jobs at its headquarters and in other leadership positions in the field.

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