NASHVILLE, Tenn.—In the high stakes poker game of back-and-forth bidding for control of tire and auto service chain Pep Boys-Manny, Moe & Jack, Icahn Enterprises L.P. has emerged with the winning hand.
The bidding war swung back and forth for two months until Dec. 29, when Bridgestone Americas Inc.—which initiated its bid for control of Pep Boys on Oct. 26—bowed out of the bidding process, saying simply it would not “present a counter offer” for Pep Boys.
That left Icahn Enterprises the victor.
The last bid on Dec. 28 from the firm, majority owned and operated by investor, business magnate and activist shareholder Carl Icahn, was $18.50 per share—an offer recommended by Pep Boys' board of directors the same day. Two days later, the boards of directors of Pep Boys approved Icahn's offer to buy full control of the Philadelphia-based tire and auto parts retailer and auto service provider.
Icahn's bid, $2 per share higher than its previous bid and $1.50 above Bridgestone's offer on Dec. 24, values Pep Boys at $1.03 billion—about the same value investor Gores Group L.L.C. had offered for the company in early 2012.
Icahn Enterprises—which describes itself as a “diversified holding company” with investments in the automotive, energy, gaming, mining and real estate sectors—already owns 12.1 percent of Pep Boys' shares, which it bought over a two-week period in late November/early December at prices ranging from $15.10 to $15.71.
The parties expect the deal, which is not conditional on financing, to close in the first quarter of 2016.
Renowned Wall Street investor Carl C. Icahn's net worth is estimated at $19.9 billion by Forbes magazine.
“This was a terrific opportunity to leverage the financial resources and industry knowledge of Icahn Enterprises to the benefit of Pep Boys' customers, manufacturer partners and employees, and further bolster our U.S. automotive footprint,” said Icahn, chairman of Icahn Enterprises.
“Since our acquisition of Auto Plus, our wholly owned automotive aftermarket company, in June, we have been actively looking for an excellent synergistic acquisition opportunity like Pep Boys, which has enormous growth potential, strong brand recognition and well-known, best-in-class customer service.”
Bridgestone officially launched its bid Nov. 16. Icahn Enterprises joined the bidding Dec. 7, saying Pep Boys would make an “excellent synergistic acquisition” opportunity for Auto Plus.
Icahn describes Auto Plus as the fifth largest U.S. supplier and distributor of automotive aftermarket products and services. It operates 35 distribution centers, 242 corporate-owned points of sale and an associated network of more than 2,000 independent wholesalers.
Pep Boys operates more than 800 retail locations with 7,500-plus service bays in 35 states and Puerto Rico, including 234 tire-centric Service & Tire stores. Fiscal 2014 sales were $2.08 billion.
Pep Boys CEO Scott Sider said the company is “very pleased to have reached this agreement, which delivers outstanding value to Pep Boys' shareholders, provides new opportunities for Pep Boys employees and allows Pep Boys to benefit from the significant expertise and resources of Icahn Enterprises.
“There are tremendous opportunities for Pep Boys and Auto Plus, a company that shares Pep Boys' unwavering commitment to best-in-class customer service and solutions.”
Icahn Enterprises is the majority shareholder of auto parts manufacturer Federal Mogul Corp., whose brands include Champion, Fel-Pro, Ferodo, MOOG and Wagner.
Some analysts covering the companies suggested Icahn would consider separating Pep Boys' Service & Tire Center stores since they don't offer auto parts on a retail basis.
Following the Dec. 28 bid by Icahn, Nashville-based Bridgestone noted it had three business days to negotiate with Pep Boys to amend the merger agreement in response to any competing proposal that the Pep Boys board determines is superior and that any further decisions would be made “based on what continues to make business and financial sense for Bridgestone and aligns with our long-term growth strategy.” But it didn't need three days to come to its final decision.
Bridgestone Retail Operations L.L.C. has more than 2,200 retail locations in the U.S. Combined they generate an estimated $3 billion-plus in annual sales.
Pep Boys' earlier agreements with Bridgestone, in October, included a termination fee payable to Bridgestone under certain circumstances, including a termination in order to enter into a superior proposal by a third party. That fee was increased to $39.5 million from $35 million in Bridgestone's offer of Dec. 24.