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Pep Boys sets New Year's Eve deadline to beat Icahn's $1 billion offer

Will Bridgestone give up?

Pep Boys - Manny Moe & Jack, the Philadelphia-based, 800-store auto-parts, tire and repair-garage chain, has given the Japan-based Bridgestone tire group until New Year's Eve to top last night's "superior" $18.50/share purchase offer from rival bidder Carl Icahn, the billionaire investor. The offer for the 800-store chain is worth around $1 billion, about half the slow-growing company's yearly sales.

Bridgestone had agreed to pay $15/share for Pep Boys in October. Bridgestone planned to merge the nearly century-old chain with its own 2,200 Firestone and other tire and repair stores, which it runs from offices in Nashville, Tennessee.

Icahn, a major Pep Boys shareholder who bought the smaller, Georgia-based Auto Plus parts store chain earlier this year, has since traded higher offers with Bridgestone. Pep Boys employs 14,000 nationally, including 500 at its Allegheny Ave. headquarters. Analysts speculate that either buyer would likely split the chain, separating Pep Boys retail stores from the larger garage, tire and fleet-service businesses.

Icahn's latest proposal would pay him to a $39.5 million "termination fee" if Pep Boys ends up rejecting it for a higher bid from someone else. That maches a provision in Bridgestone's most recent $17.50/share bid for the chain, and has the effect of forcing Bridgestone to up its offer significantly if it really wants Pep Boys.

Pep Boys says it will recommend the Icahn bid to its shareholders unless Bridgestone comes up with a better offer by Thursday, 5 p.m. Eastern time.

The bids have boosted Pep Boys' lackluster stock -- long depressed by weak growth and declining profits -- to its highest levels since 2007.