• Companies said to have considered, rejected deal last year
  • PetSmart taken private by buyout firm BC Partners in March

PetSmart Inc., the closely held pet-supplies company bought by private-equity firm BC Partners in March, is in early talks to acquire Petco Animal Supplies Inc., people with knowledge of the matter said.

PetSmart has held preliminary talks with Petco owners Leonard Green & Partners and TPG, who bought the company in 2006, said the people, who asked not to be identified because the information is private. The talks may not result in a deal.

A tie-up between PetSmart and Petco was considered and rejected last year amid concerns that a combination would be blocked over antitrust issues, the people said. Integrating the two companies so soon after BC Partners’ acquisition may also prove an obstacle, one person said. The companies are the two biggest pet-store chains in the U.S., according to research firm IBISWorld. PetSmart has almost 39 percent of the market, with Petco accounting for about 19 percent.

Spokesmen for TPG and Petco declined to comment. Spokesmen for London-based BC Partners, Leonard Green and PetSmart didn’t respond to e-mail requests seeking comment. Reuters previously reported that PetSmart and Petco have started merger talks.

Dual Track

Petco is also preparing for an initial public offering, people familiar with the situation said in August. The San Diego pet-supplies retailer, which was taken private in a $1.8 billion leveraged buyout nine years ago, is looking to raise about $800 million in an IPO that could happen as soon as this year, people with knowledge of the matter said then.

The company, pursuing what is known as a dual-track process, has reached out to private-equity firms including KKR & Co. and could fetch about $3 billion in a sale, people familiar have said.

Petco started in 1965 as a mail-order company for veterinary supplies. In 1994, it went public for the first time, before being acquired by TPG and Leonard Green in 2000 for $600 million. The private-equity firms took Petco public in 2002 and acquired it again in 2006.

PetSmart is the largest specialty pet retailer in North America, employing 53,000 people in about 1,400 stores, according to the company’s website.

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