Tags: petsmart | chewy. valuation

PetSmart Pitches Chewy Listing at $7 Billion Valuation

PetSmart Pitches Chewy Listing at $7 Billion Valuation
(Mohamed Ahmed Soliman | Dreamstime)

Monday, 03 June 2019 03:43 PM

PetSmart Inc. is taking Chewy.com public at a proposed valuation of around $7 billion after a contentious ownership battle between PetSmart’s creditors and its private equity investors.

By listing Chewy, PetSmart is hoping to cash in on robust growth at its online unit. Chewy on Monday filed an amended registration form setting a price range of $17 to $19 for its initial public offering of 41.6 million shares. Based on the midpoint of that range, PetSmart stands to raise $648 million with the sale of 36 million shares, and Chewy would reap $100.8 million by offering 5.6 million shares.

After expenses, Chewy expects to receive around $90.3 million of net proceeds, which are earmarked for working capital and other general corporate purposes, according to the filing.

Creditors and PetSmart’s private equity owners, a group led by BC Partners, in September locked horns over a transfer of the booming online business ahead of the IPO.A portion of the Chewy unit was moved to an unrestricted subsidiary and the other to a parent company, beyond the reach of debt holders. Lenders argued that PetSmart was insolvent at the time of the transfer, and that the move was thus fraudulent. Phoenix-based PetSmart twice proposed an amendment to its loan documents to eventually squash the dispute.

PetSmart’s $4 billion loan due 2022 jumped to around 97.5 cents on the dollar after the amended filing, up about a cent from 96.25 at the end of last week, according to people familiar with the pricing.

The company’s bonds were among the top performers in the U.S. high-yield market. PetSmart’s senior unsecured notes due 2025 rose as much as two cents on the dollar to 94, according to Trace data.

Chewy’s sales rose from $204 million in fiscal year 2014 to $3.5 billion in its 2018 fiscal year, the company said. Chewy estimates net sales increased to $1.1 billion for the thirteen weeks ended May 5 from $763.5 million during the same period last year due to overall growth in its customer base.

The retailer also highlighted its subscription ordering program, which represented approximately 66% of its net sales in fiscal 2018, Chewy said.

PetSmart last year pegged the value of Chewy at $4.45 billion in private documents shared with investors, according to people with knowledge of those documents. After the IPO, PetSmart expects to obtain a new revolving credit facility with covenants, including requirements that it maintain certain financial ratios.

The documents point to figures showing that “pet parents” continue to spend even in times of economic uncertainty. During the 2008 to 2010 recession, overall consumer spending in the U.S. declined, while pet spending increased by 12%, Chewy said, citing the American Pet Products Association.

“Spending on pets is a necessity and most customers purchase frequently and in regular intervals,” the company said.

PetSmart and its related entities own a majority of Chewy’s outstanding common stock and will remain the majority stakeholder after the IPO.

Chewy is listing with a dual class structure that enables company owners to maintain control even after they become public. Holders of Chewy’s B shares, including PetSmart, have 10 votes per share, the filing shows.

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PetSmart Inc. is taking Chewy.com public at a proposed valuation of around $7 billion after a contentious ownership battle between PetSmart's creditors and its private equity investors.
petsmart, chewy. valuation
Monday, 03 June 2019 03:43 PM
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