It's the largest leveraged buyout of the year, and analysts think it could spark buyouts of other retailers, a sector targeted by activist investors. Fred Katayama reports.
Bow-WOW. PetSmart is going private in what's by far the biggest leveraged buyout of the year. Acquiring the retailer for $8.7 billion: a private equity consortium led by BC Partners. It's paying a 39 percent premium to the closing price on July 2. That's the day before activist investor Jana Partners disclosed its stake and urged PetSmart to seek a sale. Other buyout firms had put in bids, so analysts don't foresee a higher bid emerging. Competitors such as Walmart and Amazon had taken a bite out of PetSmart's share, so taking the retailer private could enable it to invest in its omni-channel strategy without worrying about market pressure. PetSmart's shares, which are lagging the S&P 500 this year, rose in early trading. It's been a quiet year for PE firms because they couldn't find value amid rising stock prices. Some analysts think the PetSmart deal could spark other buyouts in the retail sector, which has been targeted by activist investors. Credit Suisse thinks they may give a second look at companies that have fallen out of favor such as Bed Bath & Beyond, Dick's Sporting Goods, Pier 1, and Best Buy. Analyst Seth Sigman said, "... the strong support for PetSmart from long term investors may provide another reason for the market to reconsider the outlook and the options to realize the potential value in these higher quality retail concepts."