In a latest filing with the Securities and Exchange Commission, JANA Partners, managed by Barry Rosenstein, has disclosed a letter sent to the board of directors of PetSmart Inc. (NASDAQ:PETM). According to the filing, JANA Partners owns 9.69 million shares of the company, representing 9.8% of common stock.
In the letter, JANA Partners states that PetSmart Inc. (NASDAQ:PETM) has resisted its and other shareholders’ proposal to conduct a review of all strategic alternatives, including a sale, to maximize value following years of underperformance for shareholders. The company, instead, has proposed standalone options that are unlikely to generate as much value as a sale given its numerous operating and strategic challenges, and unsuccessfully attempted to convince the market that there is lack of interest from potential buyers.
According to JANA Partners, the board seems to be redoubling its efforts to avoid a genuine strategic review of all options to unlock value for shareholders. The hedge fund further stated that “we have learned from shareholders that the company held a town hall meeting for employees where it exhorted them to enhance upcoming quarterly results in anticipation of a proxy contest with us.”
Moreover, JANA Partners states that PetSmart Inc. (NASDAQ:PETM)’s plan to boost short-term results indicates an unacceptable preference on the board for self-preservation over shareholder value creation.
“In fact, we are highly concerned that PetSmart may be engaging in this short-term promotional activity for the sake of manufacturing a few good quarters at the expense of the long term health and value of the business. Conversely, if the board honestly believes these promotional moves will enhance long-term shareholder value, we question why they only began in earnest after the company began to face shareholder pressure.”
The continued effort to avoid a fulsome review of all strategic options creates the disturbing impression that the board knows where such a review would lead, and is seeking to avoid the obvious outcome, according to JANA Partners.
“Based on our years of experience advocating for change at underperforming companies, we can say with confidence that there is only one way for the board to avoid shareholder judgment at next year’s annual meeting: Do the right thing for them now by beginning a full strategic review including engaging with potential buyers. Rather than girding for a battle it will certainly lose given PetSmart Inc. (NASDAQ:PETM)’s long-running underperformance and widespread shareholder discontent, it is time for the board to demonstrate that it is willing to do whatever it takes to generate maximum shareholder value,” JANA Partners states in the letter.
Last month, in another letter, Jana Partners urged the company to reconsider their decision to conduct a leveraged recapitalization of the company.
Other significant shareholders of PetSmart Inc. (NASDAQ:PETM) include James A. Star’s Longview Asset Management, which disclosed ownership of 8.92 million shares, and Jim Simons’ Renaissance Technologies, which owns 1.57 million shares of the company.