Petco Animal Supplies Inc. said Friday that it had agreed to a $1.68-billion acquisition by two private equity companies, which had previously taken the pet-supplies retailer private in 2000.
Shares of the retail chain jumped to $27.89, up $8.44 or 43%.
San Diego-based Petco, which operates about 800 stores in 49 states, trails only PetSmart Inc., which has more than 850 stores.
Leonard Green & Partners of Los Angeles and Texas Pacific Group of Fort Worth are offering $29 a share in cash, which is 49% more than the stock's $19.45 closing price Thursday.
The deal, which also includes the assumption of $120 million in debt for a total value of $1.8 billion, is expected to close by end of the year.
"Upon completion of the transaction, Petco will be a private company that will have greater flexibility to accomplish its long-term plans," Petco Chief Executive James M. Myers said in a statement. "Texas Pacific Group and Leonard Green & Partners have deep experience investing in the retail sector."
Spokesmen for Petco and the investment groups declined to discuss the transaction, which is subject to shareholder and regulatory approval.
Standard & Poor's credit analyst Robert Lichtenstein said in a statement that Petco's debt ratings could drop because the transaction would probably substantially increase the company's debt levels.
Petco has suffered in the face of increased competition, including from Wal-Mart Stores Inc. and other discounters, and decreased consumer spending as a result of high gasoline prices, analysts said.
"There is a lot of indication that the environment for the consumer is getting tougher," said Vivian Ma, an analyst with CIBC World Markets Corp. For Petco, that means that "people tend to buy fewer supplies, which is a big part of the business for Petco or PetSmart. Maybe you won't buy a toy or pay for a massage for your pet."
In the fiscal year ended Jan. 28, Petco reported earnings of $75.2 million on sales of $2 billion, compared with $82.4 million on sales of $1.8 billion in the previous year.
"The last peak was at the end of 2004," Ma said. "The general trend since then has been down."
Leonard Green & Partners has about $3.7 billion of private equity capital and its portfolio includes retailers Neiman Marcus Group Inc., Rite Aid Corp. and Sports Authority Inc. Texas Pacific Group's past investments include Burger King Corp., Continental Airlines Inc. and J. Crew Group Inc.
In 2000, the same two private equity firms bought Petco for about $22 a share. The transaction was valued at $600 million, including assumed debt. Within two years, they sold stock to the public again, raising more than $275 million.