Barry Rosenstein Sends Letter To PetSmart, Inc. (PETM)’s Board

Barry Rosenstein, the manager of Jana Partners, is unhappy with the actions of the board of directors of PetSmart, Inc.(NASDAQ:PETM) and the stock’s “chronic underperformance”. In a recent filing with the Securities and Exchange Commission, Jana Partners has disclosed a letter sent to the board of directors of PetSmart, Inc.(NASDAQ:PETM), where Rosenstein urges them to reconsider their decision to conduct a leveraged recapitalization of the company.

Barry Rosenstein JANA PARTNERS

Rosenstein and Jana Partners believe the company management should analyze all available options, including the sale of the company, to  maximize shareholder value. They strongly disagree with the board’s decision to proceed with a leveraged recapitalization and believe this is not a good option.

“A leveraged recapitalization is appropriate only where a company can credibly say that it will drive future value higher by addressing the underlying causes of its share price underperformance. Given the chronic underperformance of this Board for shareholders, it is clear that it has no such credibility. Such added leverage would therefore only add more risk to an already risky situation for shareholders, and thus a recapitalization is very likely to be inferior to a sale in magnitude and certainty of value creation,” Rosenstein writes in  his letter.

The full letter can be found here.

At the start of July, Jana Partners has disclosed the new activist stake in PetSmart, Inc.(NASDAQ:PETM), amassing 9.82 million shares or 9.9% of the company’s common stock, which makes it the largest shareholder. James A. Star, the manager of Longview Asset Management, is also betting on this stock, having increased his fund’s stake by 12% during the first quarter of this year. In its latest 13F filing, the fund reported ownership of 7.44 million shares of PetSmart, Inc.(NASDAQ:PETM). Jim Simons has, on the other hand, chosen to limit his fund’s exposure to the stock, reducing his stake by almost a third. Renaissance Technologies reportedly holds 1.56 million shares as of the end of March, 2014.

Disclosure: none.

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