Pet specialty retailer PetSmart announced this week that it has been working with J.P. Morgan Securities and law firm Wachell, Lipton, Rosen & Katz to explore several alternatives to increase shareholder value including a sale of the company.
The move comes at the urging of investors Longview Asset Management and hedge fund Jana Partners who have both called on PetSmart to sell itself. Longview has about a 9% stake in PetSmart, while Jana holds nearly 10% according to FactSet.
“Whatever the outcome of the process, we are as committed as ever to continuing to meet the needs of our customers and their pets, attracting and retaining world class talent, and driving sales and margins,” said chairman Gregory Josefowicz. “We are not providing a timetable for our process, nor do we intend to comment further or update the market until it is complete.”
He said PetSmart has delivered a 5-year total shareholder return of 243%, versus 140.6% for the S&P 500.
“We are focused on pursuing our strategic plans, including this afternoon’s announcement that we have entered into a definitive agreement to acquire Pet360 which will allow PetSmart to enhance its omni-channel capabilities and provide customers a unique and leading 360-degree shopping experience,” said CEO David K. Lenhardt.
“This transaction is a smart and efficient way to make PetSmart a leader in the online retail space. Although online sales are still a relatively small part of the pet products industry, we expect them to become a more relevant source of revenue in the future.”
Credit Suisse analysts reported in June that PetSmart and privately owned Petco Animal Supplies have a distinct possibility of merging. Until recently, the veterinary and grooming services PetSmart offers, as well as its line of exclusive, high-end products, provided some protection against competitors.
But as Wal-Mart and smaller stores have begun carrying organic pet food and online pet supplies sales have suffered. A merged Petco-PetSmart, which would control 25% of the pet supply market, and would be a more formidable competitor than either chain on its own, analysts said.
PetSmart shares closed Wednesday (Aug. 20) at $70.52, up 1.18%.