Coverage: Mars buying animal hospital chain VCA for $7.7 billion

Candy giant Mars Inc., the maker of M&Ms and Skittles, is expanding by offering $7.7 billion to acquire pet hospital chain VCA Inc.

Zachary Tracer and Craig Giammona of Bloomberg have the news:

The acquisition turns Mars into a dominant company in corporate-owned pet hospitals, an area that’s exploded in recent years — helped by Americans treating their pets more like family members. It also could help bolster Mars’s current pet brands, including Pedigree and Whiskas. At a time when human food isn’t growing as quickly, the deal may make more sense for Mars than buying another snack business, said Ken Shea, an analyst at Bloomberg Intelligence.

“They see growth and they see diversity,” he said. “Why double down on food when it’s not growing that fast?”

The total value for the deal is about $9.1 billion, including $1.4 billion in outstanding debt. Shares of VCA, which trade under the ticker WOOF, surged as much as 29 percent to $91.03 on Monday after the transaction was announced.

Closely held Mars had already been building out its pet business, including both food and hospital care. The company owns Banfield Pet Hospital and BluePearl Veterinary Partners, and it’s acquired pet-food brands from Procter & Gamble Co. VCA, meanwhile, operates almost 800 animal hospitals in the U.S. and Canada.

The deal combines the top two veterinary hospital chains, but isn’t expected to run into regulatory challenges because it would represent less than 10 percent of the North American market, according to a research note from Stifel Nicolaus & Co.

James F. Peltz of the Los Angeles Times notes VCA will to continue to be based in Los Angeles and maintain its name:

In the employee letter, VCA management said the company would keep its headquarters in Los Angeles and continue to operate under the VCA name as part of Mars.

Originally called Veterinary Centers of America Inc., VCA was started in 1986 by founders who included brothers Robert and Arthur Antin.

Robert Antin is VCA’s chief executive and Arthur Antin is its chief operating officer. VCA said they and other members of its senior management would stay with the company after the Mars acquisition.

VCA said that its employees’ “tenure and seniority with VCA … will be maintained” and that the Mars deal would offer them “enhanced career-development opportunities.” The companies didn’t indicate whether any job cuts may occur after the deal closes.

VCA has used acquisitions to combine hospitals, diagnostic labs and veterinarians into its network. In 2014, the company even acquired a dog day-care chain called Camp Bow Wow.

Leslie Picker of the New York Times notes that Mars has been in the pet care business for decades:

Poul Weihrauch, the president of Mars Petcare, said in an interview that Mars’ “love story” with pets goes back to 1935. That year, Forrest Mars Sr. bought Chappell Brothers, giving the candy company access to Chappie brand canned dog food.

Today, Mars has 39 brands in its Petcare portfolio, its second largest division. With this deal, Petcare will become its largest business, as VCA adds about $2 billion in revenue. Together, Petcare, chocolate and Wrigley contribute 90 percent of company sales.

The impetus for the acquisition goes back years. Mars, based in McLean, Va., uses VCA’s lab services in its veterinary businesses. Talks about a deal began when Mars approached VCA in November. VCA, based in Los Angeles, had been an independent company for more than 30 years, and Bob Antin, the chief executive, said it was not looking to sell.

But Mr. Antin said the prospect of joining Mars, and no longer being a public company, was intriguing.

Merging with Mars, which is privately held, rids VCA of the challenges of being a public company, including the difficulty of justifying large investment in research and development, said Mr. Antin, 66, in an interview. He said he would remain chief executive of the unit after the acquisition closes.