Why Chewy Was a Shaggy Dog of a Stock Friday

Many investors were unwilling to take a bite chew (CHWY -4.34%) on the last trading day of the week. The high-end pet care supplies company saw its share price erode by more than 4% on news of a large-scale divestment by its largest shareholder. Chewy’s decline that day was much more pronounced than the bellwether’s S&P 500 index, which fell by just 0.2%.

A big discount sale

After Thursday’s market close, Chewy announced that the stockholder is offloading just under 16.7 million shares of the company’s Class A common stock. That investor, an affiliate of the funds advised by investment management firm BC Partners Advisors, is selling those shares to the public at a price of $30 each. As is often the case in such circumstances, investors reacted to the news by trading the stock up to that level.

Chewy added that the selling shareholder granted the underwriter to the sale, the white-shoe investment bank Morgan Stanleya 30-day option to purchase an additional 2.5 million shares.

The company emphasized that it will not earn any revenue from the offering as it is not the selling party. Its Class A common stock is the stock traded on the New York Stock Exchange; its Class B shares carry greater voting power and are transferable to A shares.

Keep your eye on the ball

Chewy added that it has about 143 million Class A shares outstanding, so the current sale comprises at least 11.7% of that amount (depending on whether and to what extent Morgan Stanley exercises its option). So this discount offer immediately affected the share price. Investors shouldn’t be too concerned about this, however, as the company’s fundamental performance will have a bigger impact on the stock’s trajectory than any change in institutional ownership.