Pep Boys
On December 24, Pep Boys - Manny, Moe & Jack, commonly known as Pep Boys, successfully accepted Bridgestone’s buyout offer of $17/share and rejected Carl Icahn’s equally competitive offer for $16.50/share.
The story began earlier this year when Pep Boys announced that it is putting itself up for sale. In early October, Bridgestone and Pep Boys struck a deal in which Bridgestone would buy out Pep Boys for $15/share. Soon after, however, Icahn stepped in and countered that deal with his own offer of $15.50/share. Bridgestone, countered by agreeing to match the billionaire investor’s offer.
On Monday of this week, Pep Boys announced that Icahn’s new offer of $16.50/share was a superior offer to Bridgestone’s competing offer. Alongside, Icahn also announced that he will be willing to beat Bridgestone’s offer(s) by 10 cents a share to a max of $18.10/share.
However, Bridgestone then proceeded to rain on Icahn Enterprises, Icahn’s publicly traded company, and presented an offer of $17/per share.
Pep Boys, eventually, declared that Bridgestone’s offer was the superior one and accepted their offer. Moreover, given that the company would have to pay Bridgestone $39 million as a termination fee for their initial offer of $15/share, Pep Boys decided to side with Bridgestone.
Bridgestone’s offer, effectively, valued Pep Boys at $947 million. However, Carl Icahn’s maximum offer of $18.10/share would have valued the company at $1.03 billion.
Carl Icahn, took the defeat as a gentleman and said in an interview, “We’re happy that we have materially enhanced value for all shareholder…Merry Christmas to all of them.”
Motives
Both, Bridgestone and Icahn, however, had similar motives for acquiring Pep Boys.
Icahn wanted to acquire Pep Boys as he wanted to merge Pep Boys with his earlier buyout of the automotive chain Auto Plus chain. By combining the two firms, Icahn wanted to maximize returns by combining the revenue streams of both the companies under one.
Bridgestone, a company with 2,200 stores in the United States, wanted to expand its presence by adding 800 stores of Pep Boys to its arsenal.
However, the underlying notion driving this bid was the fact that the auto-part retailing industry is being subject to a fruitful period of sales as the automobile fleet is coming of age and is increasingly requiring additional maintenance.
Thoughts
Regardless, however, we can surely say that Carl Icahn did not receive what he wanted for Christmas.
However, what do you guys think? Should Pep Boys have accepted the offer of Carl Icahn? Or did Pep Boys make the right move by going with Bridgestone? Or should Pep Boys have pursued different strategies such as raising additional capital and restructuring the company? Let me know!
Thanks for reading!
Well written! My food for thought:
There may be emotional reasons why Pep Boys accepted Bridgestone's offer. Carl Icahn is well known as the guy with the hammer and many people dislike him for his harsh approaches to optimize business operations and capital structure. Because Bridgestone's offer was "only" about 80 million below Icahn's offer, I can see why some people rather want to sell to the classic strategic buyer (instead to an well-known activist).
I don't know the purchase method and transaction details (cash / stock portion), which can be further reasons why Pep Boys ultimately made the deal with Bridgestone.
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