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 The preliminary talks between the two private equity-owned companies
come after PetSmart ruled out a deal with Petco last year in favor
of a sale to a buyout consortium led by BC Partners Ltd for $8.7
billion, including debt.
PetSmart believed at the time that a deal with Petco might not have
received antitrust clearance and was reluctant to disclose
confidential information to its biggest competitor, a PetSmart
regulatory filing revealed in January.
Petco's private equity owners, TPG Capital LP and Leonard Green &
Partners LP, registered the company for an initial public offering
last month that could value it at between $5 billion and $6 billion,
including debt.
They are simultaneously exploring an outright sale of Petco, and are
in talks with several private equity firms, including Apollo Global
Management LLC <APO.N> and Bain Capital LLC, about such a deal, the
sources said this week.
TPG and Leonard Green have now started informal talks with PetSmart
in the hope of fetching a higher price for Petco, the sources said.
PetSmart has not yet been given access to Petco's confidential
information, and there is no certainty that talks will progress and
a deal between the two will be successfully negotiated, the sources
added.
BC Partners' consortium closed on its acquisition of PetSmart last
March. Its ability to integrate Petco so soon after that deal is now
seen by the two companies as a bigger concern than potential
antitrust hurdles, according to one of the sources.
The sources asked not to be identified because the negotiations are
not public. Petco, TPG, Apollo and Bain declined to comment, while
PetSmart and Leonard Green representatives did not respond to
requests for comment.
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Based in San Diego, California, Petco had approximately $4 billion
in sales in the 12 months to Jan. 31. PetSmart, based in Phoenix,
Arizona, had net sales of $7.1 billion in the 12 months to Feb. 1.
TPG and Leonard Green bought Petco for the second time when it was a
public company in 2006 in a $1.7 billion deal. The two buyout firms
had also taken the company private in 2000 for $600 million, and
then took it public again in 2002.
The U.S. pet industry, which includes food, supplies, veterinary
services and non-medical services, was a $74 billion market in 2014
and is projected to grow to $92 billion in 2019, according to
Petco's IPO registration document.
Research firm IBISWorld estimates that PetSmart and Petco
collectively account for more than half of the U.S. pet stores
industry's revenue. The rest is generated by family-owned
stores, small franchises and small chains of pet stores.
(Reporting by Lauren Hirsch and Greg Roumeliotis in New York;
Editing by Phil Berlowitz and Lisa Shumaker)
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