PetSmart Could Pursue Dividend Recapitalization

On Monday, PetSmart (PETM) announced that it is considering returning cash to shareholders. This news comes days after activist investor Jana Partners announced a 9.9% stake in the company and had been reportedly pushing for a sale of the company or alternative actions to boost shareholder value. I have already gone on record with my bullish view in a piece entitled Why I Followed Jana Into PetSmart. PetSmart Would Need To Borrow To Fund Dividend Currently, PETM has just $236 million, or $2.39 per share, in cash. In my view, this amount is not significant enough to move the needle for PETM and the company would likely need to raise additional funds for a special dividend payment. It is important to note that, as shown by the chart below, PETM shares responded favorably to the news. PETM shares would not have moved higher if investors thought the... Read more

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