“PetSmart & Chewy Under Fire: A Closer Look at Board Overlap”

PetSmart LLC and Chewy Inc., two major players in the pet supply retail industry, are now facing scrutiny over potential violations of U.S. antitrust law. A worker advocacy group called United for Respect has filed a complaint with the Justice Department, urging an investigation into the overlapping directors on the boards of both companies.

Pet products dominate the market

PetSmart, with its 1,660 stores across North America, is the largest pet retailer, commanding a significant 29% market share, according to Statista. In 2015, BC Partners acquired PetSmart through an $8.7 billion leveraged buyout, marking one of the biggest deals in the retail sector. Two years later, PetSmart acquired Chewy, a leading e-commerce pet products company that went public in 2019. Although BC Partners separated PetSmart and Chewy, they still remain closely connected, with BC Partners holding a substantial stake in Chewy.

The growing online pet product market

In recent years, the online sale of household and pet care products has been steadily increasing. In 2020, about one-fifth of these products were sold online, and it is projected to rise to around 30% by 2025, as reported by Statista. Among the top three online retailers for pet products in the United States are Amazon.com Inc., Walmart Inc., and Chewy. Amazon and Walmart claim the first and second spots, respectively, in the Digital Commerce 360 Top 1000 database.

Potential conflicts of interest

The concern raised by United for Respect lies in the directors who serve simultaneously on the boards of both Chewy and PetSmart. Chewy board chair Raymond Svider, who is also the chairman of BC Partners, holds seats on both boards along with Michael Chang and Fahim Ahmed, who are partners at the UK private equity firm. BC Partners controls PetSmart entirely and holds about 80% of Chewy’s common stock, representing 98% of the voting control. According to the companies’ attorney, this affiliation makes them partners rather than direct competitors, potentially exempting them from the antitrust law’s prohibition on overlapping directors.

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Scrutiny on corporate boards

United for Respect, a nonprofit organization focused on labor advocacy, has been actively involved in negotiations with companies backed by private equity. In the past, the group has supported workers’ efforts at Toys R Us and Art Van Furniture, pressuring private equity owners such as KKR & Co. and Thomas H. Lee Partners. Now, their attention has turned to BC Partners and PetSmart, shedding light on worker conditions and urging public investors to take notice.

The Justice Department has been actively investigating potential violations of antitrust laws related to overlapping directors. Since the initiative began, over a dozen board directors have stepped down from their positions. Private equity firm Thoma Bravo LLC and Apollo Global Management Inc. are among those whose directors have resigned following concerns raised by the Justice Department. The agency has currently initiated 17 active investigations into illegal board overlaps.

In this landscape of increasing scrutiny, PetSmart, Chewy, and their shared board members now face a pivotal moment. As the ecommerce industry evolves, it’s crucial for the companies to maintain transparency, adhere to antitrust regulations, and prioritize the well-being of their workers.