By Don Bauder
In days of yore, a bride wore a white dress to connote her virginity. Occasionally, a woman who had been married four times insisted on wearing a white dress for her fifth trip up the aisle. That always engendered local snickers.
On Thursday, San Diego’s Petco sold its stock in an initial public offering.
“Initial”? This bride hardly merited a white dress.
The pet supplier had a legitimate “initial” public offering in 1994. But in 2000 it went private again. It went public again in 2002 but went private again in 2008. In 2015, it had plans for yet another so-called initial public offering (in which the company itself would receive no proceeds), but instead sold out in a private equity deal to two institutions that still have around 80% of the ownership.
Petco used the “leveraged buyout” technique by which a company whose stock is already traded is bought out — called “going private” — then loaded up with additional debt.
For example, in its first go-around, the buyers bought the company for $600 million but put only $190 million of their own money behind the deal. The rest was debt. The big pile of debt harmed the company. So when it donned the white dress again, it was a weaker company. In leveraged buyouts, insiders get rich and small investors get fleeced.
Private Equity Stakeholder Project notes that Petco stock, despite its big runup, is, well, a dog. Sales have grown only 1.4% a year since the 2015 buyout.
Earnings have lagged, too, as competing pet companies have prospered. Since 2015, Petco has added 59 stores but cut almost 5,000 employees. “Multiple private equity buyouts have left Petco with a mountain of debt,” says Private Equity Stakeholder Project.
Despite all this public information, Petco shares jumped 63% Thursday, its “initial” day. At mid-day Friday, the market had sobered up, as the shares declined, but remained high.
At Friday’s close, Petco stock (with ticker symbol WOOF) was trading at $27.71 a share — down 6%.
Former Union-Tribune business editor Don Bauder retired in September 2018 as a columnist for the San Diego Reader. He lives in Salida, Colorado.