The $600 million buyout of Petco Animal Supplies Inc. was in the doghouse early in the week in the eyes of the Street. By week's end, though, checks on the deal put a leash on speculation that it might be in trouble. This past Monday, Sept. 11, on heavy volume and swirling rumors about the financing, Petco's stock dipped to as low as $17.88, or 18% south of the $22-per-share transaction. Petco stock rebounded during the rest of last week, closing at $20.13 at press time. But that level still conferred a 340% annualized rate of return if the deal closes, for example, on Sept. 27, the day of the shareholder vote. An end-of-September close would yield a 261.6% annualized rate of return. And if the close goes out to, say, Oct. 6, that figure would still be an impressive 179%.

"It's recovered quite a bit, but it's still a hell of a spread," remarked an arb.

"Everything is proceeding as planned," commented Norman Dowling, Petco VP of finance. "We continue to believe the financing will close shortly thereafter," he said, referring to the scheduled shareholder vote.

San Diego-based Petco operates more than 500 pet supplies stores in 40 states and Washington, D.C.

Leonard Green & Partners and Texas Pacific Group will each put up $92.5 million in equity for the buyout, which was announced on May 17. On the high yield front, Goldman Sachs Credit Partners and Wells Fargo Bank have committed $300 million, along with a $100 million revolver.

The bank meetings, or road show, took place in Los Angeles last week, and in New York two weeks ago, said Dowling. Petco has had "no indication that the financing won't happen," he said.

John Danhakl, the Leonard Green partner heading up the firm's efforts, said, "I don't see any issues [that would prevent] closing within the parameters set forth in the agreement."

Jonathan Coslet, a partner at Texas Pacific, could not be reached for comment.

Todd Cruse, an analyst at ICM Asset Management, Petco's largest shareholder with more than 10% of the company, said, "We're comfortable that the deal is going to close."