Update: PetSmart Offer Above My Expectations At $83/Share

| About: PetSmart, Inc (PETM)
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Summary

PETM has entered an agreement to be acquired at a price of $83/share.

The offer represents a 39% premium over the July 2, 2014 unaffected share price and a 6.8% premium over Friday's closing price of $77.67/share.

I am surprised to the upside by the $83/share offer as my previous expectation was that it would be closer to $78-$80/share.

Following several months reviewing strategic alternatives, PetSmart (NASDAQ:PETM) has entered an agreement to be acquired at a price of $83/share. The acquisition is lead by a consortium including BC Partners, La Caisse de depot et placement du Quebec and StepStone. Longview Asset Management which owns ~9% of PETM shares has committed to vote in favor of the transaction.

The offer represents a 39% premium over the July 2, 2014 unaffected share price and a 6.8% premium over Friday's closing price of $77.67/share. The transaction is valued at $8.7 billion which is 9.1x adjusted EBITDA for twelve months ending November 2014.

In my previous article PETM was trading at 8.2x trailing EBITDA and I believed any takeover premium would be limited. I am surprised to the upside by the $83/share offer as my previous expectation was that it would be closer to $78-$80/share. I believed it would be a struggle for any private equity firm to generate sufficient returns (exit EBITDA multiple not likely to be any greater than 8-9x) over a reasonable time frame to justify much more than $78-80/share.

The deal is subject to shareholder and regulatory approval, but given management's endorsement and Longview's commitment to vote in favor of the transaction I suspect it will go through at $83/share.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.