This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

PetSmart Shops Assets Amid Activist Pressure

Stocks in this article: PETMJPM


Having officially put itself on the block, potential acquirers will be crunching the math for the deal. And it's a deal that makes sense, the math for the deal, especially one that involves private equity.

With about $250 million in cash on its balance sheet, and almost $520 million in debt, PetSmart has an enterprise value of approximately $7.18 billion, based on a market cap of about $6.91 billion. That valuation is a multiple of 7.63 times the roughly $940 million in Ebitda PetSmart is estimated to generate in the fiscal year ending Jan. 31, according to Bloomberg data.

But that enterprise value is based on the affected stock price. On July 2, the day before Jana Partners announced its stake, PetSmart closed at $59.81 per share, 14% below where it closed on Tuesday at $69.70 per share.

At nearly $60 a share, PetSmart had a market cap of about $5.95 billion. Adding debt of nearly $520 million and subtracting cash of about $250 million to that amount (per Bloomberg data), would equate to an enterprise value of $6.22 billion or a valuation multiple of 6.6 times the $940 million in Ebitda projected for its current fiscal year.

That's under the unaffected 7 times multiple PE firms look for when considering potential buyout targets. A 20% premium to the unaffected price would equate to an offer somewhere in the vicinity of $72 per share.

Plus, PE firms merging PetSmart with a portfolio company could generate cost-saving synergies and provide room for an even higher bid. Historically, PE firms can end up paying multiples in the high single digits for more mature retailers. At $72 per share, the company would have a market cap of $7.14 billion based on roughly 99.2 million outstanding and an enterprise value of $7.41 billion.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs