Hit #105
Petco Animal Supplies (PETC) is being taken private by Leonard Green and Partners and Texas Pacific Group for around $1.8 billion. This cash offer of $29/share is a premium of 42.5% over my average cost per share of $20.35. The premium is rich and I think the buyers overpaid, but I won't complain too much. The private equity groups and their sophisiticated investors must know lot more than I do!
I had started buying Petco shares recently after a pullback made it attractive. But I also saw a potential risk associated with the slowing housing market. Like a number of other sectors of the economy, the petcare industry received a big boost over the last couple of years due to high home-equity withdrawals. That party ended a few months ago, and the impact will be felt for the next few years.
Others who are likely being watched by private equity groups -
- Borders (BGP), which is now worth buying after yesterday's warning and the subsequent share price drop. Borders is definitely a worthy candidate for a management buyout. The current yield is also attractive and I don't see the dividend being slashed.
- Gap (GPS) : the turnaround isn't even visible yet, but the price and the yield look tempting.
- Radioshack (RSH) : has rebounded recently. I would wait for another pullback. Like Gap, the brand identity will be attractive to potential buyers.
- Bed, Bath and Beyond (BBBY) : this may have to fall some more before it becomes a buy. Competitor Linen 'n Things was taken private earlier this year. In a crashing real-estate market this stock can go down a lot more.
Previous hit - Encore Medical (#104)
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