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Petsmart Bought By Private Investors For $8.7Bn

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US pet products retailer PetSmart has been sold to a group of private investors for $8.7bn (£5.5bn), in the largest debt-funded deal of the year.

BC Partners will pay $83 per share, significantly higher than Friday's closing price of $77.67.

Jana Partners, a so-called "activist" fund, bought a stake in the company earlier this year, and began pushing for a sale in the summer.

Jana paid less than $55 per share on average for its stake in PetSmart.

PetSmart, which has approximately 54,000 employees and 1,387 stores, told investors in August that it would investigate a potential sale.

The firm faces fierce competition from large retailers, including Wal-Mart and Amazon. Last month, it reported third-quarter net income of $92.2m and a sales rise of 2.6% to $1.7bn.

The American tax system strikes again? More profitable to load a business up with debt and claim tax deductions than it is to make a profit?

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Doesnt make sense. The company faces tough competition, but the investors are willing to pay a premium over the market rate. Sales are up.

Lets take a look from an investors view.

I think it is one of those leveraged private equity buy outs, and we've seen that before wih pubically listed companies. A bit of asset stripping, cost cutting, outsourcing, should double or quadruple their money in 5 years or less.

From just the basic numbers,

54,000 / 1,387 = Just under 39 employees per store.

How many do you need to run a pet store. If you are a brutal asset stripper, maybe cut down to less than 5 staff per store. Its dog food, most people can read the packet and know what they want.

That doesnt obviously include the head office, and logistics staff. But there is probably a lot of fat to cut.

So, they arent worried about increased competition, as they can make savings internally. Mystery solved (although not every leveraged buyout has worked out profitable).

Edited by 200p

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