pounds 150m Pet City sale nets founders pounds 50m paper profit

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The Independent Online
The three founders of Pet City, the pet retailer, yesterday netted millions of pounds of paper profits after PetsMart, the American pet superstore giant, launched its expansion into Europe with an agreed merger that valued the British company at pounds 150m.

Pet City's three main directors own a third of the company. Giles Clarke, who co-founded the business in 1989, has a 13 per cent stake worth almost pounds 20m. Richard Northcott, who bought into the business in 1991, holds a similar-sized stake while Roger Pedder, co-founder and chairman of Clark's shoes, has a 7 per cent stake worth pounds 10.5m. Selim Zilhka, the founder of the Mothercare childrenswear chain, will also make around pounds 10m.

As it is an all-paper deal none of the directors is selling shares for cash. They are taking equity in PetsMart instead.

It is likely that smaller investors who bought shares in Pet City when it floated on AIM less than a year ago will seek to sell their shares. Pet City shares closed 220p higher yesterday at 560p. They were priced at 300p at the time of flotation.

Based on the last reported price of PetsMart on Nasdaq of $29.37, the deal values Pet City at pounds 150.2m and each Pet City share at 594p.

Pet City has 50 stores with 53 more scheduled to open. PetsMart hopes to build a UK chain of 300 outlets plus a further 700 in continental Europe.

Pet City achieved sales of pounds 54m last year and a pre-tax loss of just under pounds 1m. This is because the company has invested all the trading profits in expanding the portfolio.

PetsMart was founded in 1987 and has 311 stores. It has sales of $1bn and market capitalisation of $3.1bn. Though it recorded a small loss in its last financial year, the company says this was due to absorbing the losses of rival chains it has taken over. It has undertaken five acquisitions in the past three years.

PetsMart chief executive officer, Mark Henson, said the deal would enable the company to achieve greater economies of scale and to expand the Pet City network. There will be no job losses.

"This is one of the great growth opportunities of the 1990s," he said. He also said he hoped to add more "pet services" to the stores. These will include veterinary surgeries, grooming parlours, dog obedience classes and photographic studios.

Following the merger, Mr Northcott will join the board of PetsMart as a non-executive director. Mr Clarke will continue as chief executive of Pet City and take control of the company's European expansion plans.