The nation’s largest pet specialty retailer could be in for a long summer now that activist investor Jana Partners is pressing for a review of strategic alternatives after acquiring a 9.9% stake in the company.
Jana Partners, a 13-year-old firm that describes itself as a value-oriented adviser specializing in event driven investing, disclosed in filing with the Securities and Exchange Commission on July 3 that it had acquired a significant ownership position in PetSmart and it was looking for changes to be made. Jana Partners indicated it had acquired had acquired 9,820,734 PetSmart shares, a figure that includes options to purchase 4,733,700 shares, which equates to roughly 9.9% of the 99,208,627 PetSmart shares outstanding as of May 16.
Jana Partners indicated in the filing that it believes PetSmart shares are undervalued and represent an attractive investment opportunity. The disclosure of the company’s stake on its own was enough to cause Petsmart shares to surge more than $7 from the July 2 closing price of $59.81.
The firm indicated it plans to have discussions with the PetSmart board and management to review strategic alternatives such as a sale of the company, improving operating performance, the company’s capital structure and how to return significant capital to shareholders. Jana Partners’ filing also indicates it wants to discuss improving PetSmart’s disclosure to shareholders and the composition of the company’s management and board of directors.
PetSmart responded in a statement saying it, “welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value. Our Board and management team are committed to creating value for all PetSmart shareholders, and we will continue to take actions to accomplish this goal and position the company for growth and success.”
PetSmart is off to a difficult start this year. The company’s first quarter same store sales fell 0.6% while total sales at the company’s 1,340 stores increased 1.1% to roughly $1.7 billion. Earnings per share of $1.04 were up 6.1% compared to 98 cents a share the prior year. The tepid performance prompted the company to forecast that second quarter same store sales would be flat to down slight and full year comps were likely to be flat.