Carl Icahn Definitely, Probably Secures Purchase of Pep Boys, Maybe
Stop us if you’ve heard this one before:
Billionaire investor, activist and horse racing enthusiast Carl Icahn bid to buy Pep Boys on Tuesday for just over $1 billion, outpricing Japanese tire giant Bridgestone for the franchise, Bloomberg reported (via Automotive News).
Bridgestone’s refusal to tender a competing offer after its final bid of $947 million for the 800 Pep Boys stores seemingly means that Icahn is the winner — although we’ve been here before.
Icahn offered up to $18.50 per share of the company, of which he already owns 12 percent, which is slightly higher than the company’s stock during trading Wednesday.
Originally, Pep Boys indicated that a lower offer by Bridgestone would be a better deal, until it read this statement:
“We cannot understand the actions of the directors in that they know we were willing to offer a lot more than $17,” Icahn told Bloomberg on Monday.
Oh, right. Math.
Icahn said in October that the franchise would complement another auto parts retailer that he owns, Auto Plus. That sparked a bidding war between Icahn and Bridgestone that lasted, maybe, up until Wednesday. Pep Boys said it initially balked at Icahn’s offer of $13.50 per share in favor of a $15 per share bid from Bridgestone. Icahn raised his bid to $15.50, which Bridgestone matched, before Icahn offered $16.50. Bridgestone countered at $17 per share, before finally relenting after Icahn’s $18.50 per share bid, according to Marketwatch.
Bridgestone was interested in purchasing the franchise to complement its own 2,200 tire centers in the U.S. and Canada. Icahn may still split the franchise, although his plans weren’t made public. In the deal, Icahn agreed to pay a $39.5 million “breakup” fee to Bridgestone.
CNBC reported the deal with Icahn could be done by the first quarter of 2016. Unless it doesn’t get done.
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I wonder when Pep Boys management tires of this and decides to stay independent? Icahn's Auto Plus has full saturation of the lower 48 states and doesn't need the 800 Pep Boys stores. It seems Icahn just wants to keep Bridgestone out of the auto parts business, since it's stores are mainly tire outlets. With Icahn liable to sell off or shut down a large number of Pep Boys stores, why sell out? A hostile takeover would cost Icahn much more than he's offering, and that's the true value of Pep Boys.
Why? I imagine that Pep Boys mgmt stands to profit handsomely from golden parachutes or other incentives in the event that Icahn does anything like that, not to mention what the bidding war has done for their own stock holdings.