Jana Partners Unveils Potential Board Slate for PetSmart

Activist investor Jana Partners LLC is looking to turn up the heat on pet products retailer PetSmart Inc. (PETM) , as private equity firms KKR & Co. LP (KKR) and Clayton, Dubilier & Rice LLC are apparently preparing a joint offer.

Jana, a hedge fund holding a 9.8% stake in the Phoenix, Ariz.-based retailer, is pressing PetSmart to sell the business.

The activist has lined up nominees for PetSmart's board in the event of a proxy contest, according to a 13D filed with the Securities and Exchange Commission on Thursday evening.

Those nominees include Edwin Crawford, previously a chairman of pharmacy operator CVS Caremark Inc.; Julian Day, former chairman and CEO of electronics retailer RadioShack Corp.; Thomas Dickson, former CEO of Harris Teeter Supermarkets Inc.; Susan Feldman, co-founder of online furniture retailer One Kings Lane; and Lawrence Jackson, formerly president and CEO of global procurement for discount department store operator Wal-Mart Stores Inc.

Jana may also reserve the right to field a candidate from the firm, totaling six nominees, enough to control a 10-member board if it were to fully succeed in a proxy contest.

Jana would propose the slate if the retailer does not complete its strategic review to Jana's satisfaction, a source said.

The filing was made as both KKR and Clayton, Dubilier & Rice have been conducting due diligence, people familiar with the matter confirmed. These people added that a bid could come within the next two weeks.

A person even suggested that there could still be multiple bids and that Leonard Green & Partners LP and TPG, the two PE firms that back rival pet supplies chain Petco Animal Supplies Inc., could end up making an offer of their own for PetSmart once KKR and Clayton, Dubilier & Rice submit their offer.

Leonard Green and TPG have not been allowed by PetSmart to conduct due diligence for competitive reasons, but could base their offer on what other PE firms think PetSmart is worth, the source suggested. But an industry watcher said that a Leonard Green and TPG acquisition of PetSmart would face antitrust problems.

Apollo Global Management LLC (APO) and BC Partners were also said to be taking a look at PetSmart's financials, according to a person familiar with the situation.

Another source, however, said there was still a question about PetSmart's intentions, as it appears to be making optimistic projections and taking short-term actions to clean up its balance sheet.

This person said PetSmart was either positioning itself to get the best valuation possible in a sale or attempting to push up its stock price to make the retailer too expensive for an LBO.

Reuters first reported that KKR and Clayton, Dubilier & Rice could make an offer for the pet retail giant.

The math on a leveraged buyout of PetSmart has been appealing to private equity firms. When Jana revealed its stake in late July, the retailer had an enterprise value of about 6.7 times Ebitda, well within the range of what PE firms look for when considering buyouts.

— Sarah Pringle contributed to this report.

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