NASHVILLE, Tenn.—Bridgestone Americas Inc. was one of at least six entities bidding this past summer to buy auto service provider/tire retailer Pep Boys—Manny, Moe & Jack, according to information gleaned from filings by both companies with the Securities and Exchange Commission.
Bridgestone is the only party identified by name.
In its filings, Bridgestone revealed it had viewed Pep Boys as an acquisition target on more than one occasion over the past few years, starting in 2013 with an internal review under then Bridgestone Retail Operations President Larry McGee.
Bridgestone management revisited the possibility again in 2014, the filing said, but with a twist: Bridgestone envisioned “conducting an initial test run of Pep Boys' business model by acquiring a few select locations from Pep Boys and partnering with a major auto parts retailer to operate the retail segment in each of the locations.”
Bridgestone considered buying five to 10 Pep Boys locations for this trial.
This idea progressed to the point where Bridgestone approached Pep Boys in February 2015 about conducting a test run at a few locations, the filing said. Bridgestone singled out markets such as Minneapolis, Minn.; Oklahoma City, Okla.; and El Paso, Texas, for the trials.
Discussions did not go beyond the preliminary stage, and then on May 19, 2015, the Wall Street Journal reported a number of companies were looking at Pep Boys as a potential acquisition.
Bridgestone engaged J.P. Morgan Securities L.L.C. in June to advise it on a potential bid for Pep Boys, which culminated in mid-July with the first official contact between Bridgestone and Pep Boys on the matter, the filing said.
Bridgestone's initial preliminary, non-binding letter of interest suggested a per-share offer of $12 to $15. The companies entered into a confidentiality agreement on July 31 with respect to the transaction.
Bridgestone's offer was in the same range as some of the other offers Pep Boys received, the Philadelphia-based auto service provider's SEC filings show.
Over the intervening months, Pep Boys entertained several offers and counteroffers from Bridgestone and other potential suitors, the filing states, until Oct. 24 when Bridgestone advised Pep Boys through intermediaries that $15 per share would its final offer.
A day later Pep Boys and Bridgestone finalized details of the buyout offer and the parties disclosed the merger agreement on the 26th.
Among the provisions the parties have agreed to include:
c Bridgestone agreed to divest assets representing up to $75 million in annual sales to meet any potential antitrust objections by the government; and
c Pep Boys agreed to pay Bridgestone a $35 million termination fee “in the event that the merger agreement is terminated.”
Bridgestone also noted it expects to spend about $30 million above the $835 million offer for fees, expenses and other associated costs.
In recommending that shareholders accept the deal, Pep Boys board of directors noted:
c Bridgestone's all-cash offer represents “full and fair value for the common stock….”;
c An all-cash offer “provides certainty and immediate value” to shareholders;
c The offer provides “relative certainty and liquidity” vs. the “risks and uncertainty” associated with business as usual;
c The offer represents a considerable premium over the stock's trading price dating back to early 2015; and
c The offer is “more favorable” than the alternatives of continuing as an independent company or pursuing other potential suitors, especially considering the low probability of a better competing offer.
In its filing, Bridgestone noted that Pep Boys will continue to exist as a separate legal entity but will be a wholly owned subsidiary of Bridgestone Retail Operations.
Bridgestone's $835 million offer to buy Pep Boys will create a retail network of more than 3,000 stores and annual revenue estimated at more than $5 billion.
Philadelphia-based Pep Boys operates 801 retail locations with 7,500-plus service bays in 35 states and Puerto Rico, including 234 tire-centric Service & Tire Center stores. The tire centers are clustered predominantly in major metro areas such as Atlanta, Chicago, Houston, Philadelphia, Los Angeles, San Diego, Seattle and Tallahassee and Tampa, Fla.
Fiscal 2014 sales were $2.08 billion, putting the per-store average at $2.6 million. Tires accounted for 18.1 percent of the firm's sales last year vs. 58.4 percent for parts and accessories and 23.5 percent for service labor.
Pep Boys stores carry a dozen-plus brands of tires, including BFGoodrich, Carlisle, Continental, Cooper, Falken, General, Hankook, Maxxis, Michelin, Mickey Thompson and Pirelli, as well as its own brands, Cornell, Definity and Futura, made by Cooper Tire & Rubber Co.
Bridgestone Americas' retail presence in the U.S. stands at more than 2,200 locations, operating under the Firestone Complete Auto Care, Tires Plus, Hibdon Tires Plus and Wheel Works brand banners.
Bridgestone also claims to be represented by more than 5,000 independent dealers and distributors in the U.S.