Texas Pacific Group and Leonard Green & Partners LP agreed to acquire Petco Animal Supplies Inc. for $1.68 billion, the second time the two buyout firms have taken the U.S. retailer of pet products private.
Petco investors will receive $29 a share in cash, 49 percent more yesterday's closing price, the San Diego-based company said today in a statement. Shares of the second-largest pet-supplies retailer had fallen 48 percent in the past 19 months, almost double the decline of No. 1 PetSmart Inc.
``Texas Pacific and Leonard Green understand the pet business,'' said David Schick, a Stifel Nicolaus & Co. analyst who has a ``hold'' rating on the shares and doesn't own any. ``But when there are doubts about the consumer then this business is a rotten business to own in the public markets.''
Texas Pacific, based in Fort Worth, Texas, and Los Angeles- based Leonard Green bought Petco in October 2000 for $600 million. Within two years they sold most of it in an initial public offering that valued the company at $1 billion. Petco's market value more than doubled by the end of 2004.
Petco shares rose $8.44, or 43 percent, to $27.89 at 4 p.m. New York time in Nasdaq Stock Market trading. PetSmart climbed 97 cents, or 4.1 percent, to $24.44 after trading as high as $25.55.
Petco operates more than 800 stores in 49 states and distributes pet and food supplies via the Internet. First- quarter net income fell 36 percent to $11 million, while sales rose 9 percent to $521 million.
Petco has been hurt by lower prices at rivals such as PetSmart and Wal-Mart Stores Inc., said CIBC World Markets analyst Vivian Ma. Petco's prices are on average 10 percent to 15 percent higher than PetSmart's, she said.
``Consumers are feeling the pinch from higher gas prices and are trying to save money,'' Ma said in a telephone interview. She has a ``market perform'' rating on the shares and doesn't own any.
Crude oil prices have gained 34 percent this year and may rise further on concern the conflict in the Middle East will disrupt shipments from the region, according to a Bloomberg News survey.
Americans will spend an estimated $38.4 billion this year on food, veterinary care and supplies for their pets, a 35 percent increase from $28.5 billion in 2001, according to the American Pet Products Manufacturers Association. Sixty-three percent of U.S. households own a pet, according to the trade group.
Stifel Nicolaus analyst Schick said he expects the buyout firms to close or relocate some Petco stores and be selective in their promotions to cut cost.
Private-equity firms have announced $236 billion of takeovers in 2006, up from $132 billion for the same period last year, according to data compiled by Bloomberg. Texas Pacific and Leonard Green are paying about 22 times Petco's estimated earnings, and will assume $120 million of its debt. PetSmart trades at 16.9 times estimated earnings.
The value of retail private-equity takeovers announced so far this year has risen to $24 billion from $19 billion for the same period last year, Bloomberg data show.
It's uncommon for private-equity firms to repurchase companies they had previously sold. One such deal occurred in 2002, when London-based Permira Advisers Ltd. took Ferretti SpA private after leading the Italian luxury yacht maker through an IPO two years earlier.
Texas Pacific, run by Jim Coulter, 47, and David Bonderman, 64, is seeking more than $14 billion for a new buyout fund. Its past retail investments include Burger King Corp., the second- biggest U.S. hamburger chain; Del Monte Foods Co., the largest U.S. maker of canned fruits and vegetables; and wine maker Beringer Wine Estates Holdings Inc.
Leonard Green, founded in 1989 and run by John Danhakl, Peter Nolan and Jonathan Sokoloff, has invested in about 38 companies. Retail transactions include restaurant chain Claim Jumper Restaurants LLC, luxury retailer Neiman Marcus Group Inc. and drugstore chain Rite Aid Corp.
Green Equity Investors IV LP, one of Leonard Green's private-equity funds, bought 1.8 million shares of Petco in August and September on the open market at prices ranging from $21.86 to $21.94 each, according to regulatory filings.
Owen Blicksilver, a spokesman for Texas Pacific and Leonard Green, said the firms wouldn't comment on the buyout. The companies expect to complete the sale in the fourth quarter, Petco said.
``Petco will be a private company that will have greater flexibility to accomplish its long-term plans,'' Petco Chief Executive James Myers said in the statement. ``Texas Pacific Group and Leonard Green & Partners have deep experience investing in the retail sector.''
Credit Suisse Group, Bank of America Corp., Wells Fargo & Co. and mezzanine funds managed by Goldman Sachs Group Inc. have provided commitments for the debt portion of the financing of the buyout, Petco said in the statement.
UBS AG was the financial adviser to Petco and Pillsbury Winthrop Shaw Pittman LLP provided legal counsel.
http://www.chicagotribune.com/busine...i-business-hed
think this will help petco quality to go up some?
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