Market experts are speculating about the possibility of San Diego-based Petco being a strong candidate to take over PetSmart (PETM.O-NASDAQ), which is the target of an activist hedge fund, Jana Partners.
Morgan Stanley weighed in Monday, reports Reuters, upgrading PetSmart’s stock to “equal-weight” from “underweight,” saying a merger with Petco would offer the targeted retailer “the greatest source of upside.”
Jana holds nearly 10 percent of PetSmart’s stock, which had hovered at $60 a share, before rising last week on news that Jana was urging a sale of the company.
The Phoenix-based company’s stock had risen to $68.19 a share in early-afternoon trading Tuesday. There are more than 1,200 stores in the PetSmart chain, valued at nearly $6 billion, according to Reuters, which also reported an analyst estimated a deal to purchase PetSmart could fetch up to $8 billion.
Another analyst told the Wall Street Journal that the best bet for PetSmart outside of a sale to Petco would be deal with a private-equity firm.
Bloomberg also reported PetSmart has attempted to make gains by slowing expansion plans and adding new, more expensive products to its shelves.
PetSmart released a brief statement in response to Jana’s concerns.
“PetSmart welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value,” the company said.
Petco, which was founded almost 50 years ago, has more than 1,200 stores across the nation, employing 24,000 people. The company has been privately held since 2006, after four years of being publicly traded.
The company, which has grown steadily since the change, recently purchased a new 300,000 square-foot corporate headquarters in Rancho Bernardo, with the aim of completing renovations next year.
