Petco Explores Merger With PetSmart

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Petco Holdings Inc is exploring the possibility of being acquired by PetSmart Inc, according to reporting by Reuters. Such a merger would account for 30 percent of U.S. pet specialty supply stores.

A regulatory filing revealed in January that PetSmart decided against a deal with Petco last year because it may not have received antitrust clearance and because the company did not want to disclose confidential information to Petco, its biggest competitor. Instead, PetSmart was sold to a buyout consortium led by BC Partners Ltd for $8.7 billion, including debt.

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 and Bain Capital LLC, about such a deal.

TPG and Leonard Green have now started informal talks with PetSmart in the hope of fetching a higher price for Petco, Reuters’ sources said. According to those sources, there is no certainty that a deal between the two will be reached.

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.