Exclusive: Amid investor pressure, PetSmart says to explore sale

Reuters
A dog appears in a movie on a television inside a private dog suite at a PetSmart PetsHotel and Doggie Day Camp in Los Angeles
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A dog appears in a movie on a television inside a private dog suite at a PetSmart PetsHotel and Doggie Day Camp in Los Angeles, California, May 14, 2012. REUTERS/David McNew

By Soyoung Kim

NEW YORK (Reuters) - PetSmart Inc said on Tuesday it will explore a potential sale of the company, bowing to mounting pressure from several shareholders led by activist investor Jana Partners LLC.

Reuters reported earlier on Tuesday that the pet supply retailer, which has a market capitalization of nearly $7 billion, has decided to review strategic alternatives and could announce the intention to do so as soon as this week.

PetSmart said its board determined that it will explore alternatives to maximize value for shareholders, including a possible sale, following "many constructive conversations" with a wide range of shareholders over the last several months.

The board is working with JPMorgan Chase & Co and law firm Wachtell, Lipton, Rosen & Katz to assist in the process.

There is no guarantee the review will lead to a deal and PetSmart could still determine that it would be better off on its own, people familiar with the matter told Reuters earlier on Tuesday, asking not to be named because the matter is not public.

Shares of PetSmart rose much as 5 percent on the news, and closed up 1.8 percent to $69.70 on Tuesday.

Private equity firms have been interested in the prospect of taking PetSmart private and several are expected to participate in a sale process, according to people familiar with the matter.

PetSmart's likely move marks yet another victory for Jana. The firm, which is run by Barry Rosenstein, has amassed stakes in companies it perceived to be undervalued and successfully pushed them to sell themselves in recent months.

Earlier this year, Jana pressured engineering and construction services firm URS Corp to pursue a sale, resulting in its takeover by industry rival AECOM Technology Corp for $4 billion.

Last year, Jana pushed Safeway Inc to review strategic alternatives after disclosing a stake in the grocery chain in September. Safeway agreed in March to be acquired by private equity firm Cerberus Capital Management LP [CBS.UL] in a deal valued at about $9.4 billion.

PetSmart has faced mounting investor pressure at a time when fierce competition from large retailers including Wal-Mart Stores Inc and Amazon is squeezing specialty stores.

Jana Partners, which has reported a 9.8 percent stake in PetSmart, has been calling on the company to pursue a sale after what it calls years of financial underperformance. It has been joined in its push by other investors, including Longview Asset Management.

Phoenix-based PetSmart, founded in 1986, has about 53,000 employees and operates more than 1,340 pet stores, according to its website.

(Reporting by Soyoung Kim in New York,; Editing by Leslie Adler)

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