Pep Boys, the Philadelphia auto-parts and auto-repair chain, this morning confirms that Carl Icahn's $15.50-a-share offer yesterday to buy the company is a "superior" offer to Firestone stores owner Bridgestone Corp.'s $15-a-share deal from October.
But the Bridgestone deal isn't dead; Pep Boys directors haven't cancelled it, and shareholders (Mario Gabelli's Gamco mutual funds own 20%, the Franklin funds and Icahn each own about another 12%) are still on track to vote on Bridgestone's offer. Still, Pep Boy's acknowledgement that Icahn made a sweeter offer pressures Bridgestone to better Icahn's bid, or risk shareholders rejecting its own. Pep Boys' statement:
PHILADELPHIA, Dec. 8, 2015 - The Pep Boys – Manny, Moe & Jack (NYSE: PBY), the nation's leading automotive aftermarket service and retail chain, announced today that its Board of Directors, after consultation with its independent legal and financial advisors, has determined that the proposal from Icahn Enterprises L.P. to acquire Pep Boys for $15.50 per share in cash (as set forth in the Company's filing with the Securities and Exchange Commission, dated December 7, 2015) would reasonably be expected to result in a "Superior Proposal" as defined in the Company's agreement and plan of merger with Bridgestone Retail Operations, LLC.
This determination by the Board allows the Company to take certain actions, in accordance with the procedures set forth in the Bridgestone agreement, to further consider the Icahn proposal.
In and of itself, however, this determination does not allow the Company to terminate the Bridgestone agreement, nor enter into a definitive transaction with Icahn, both of which can also only occur in accordance with the procedures set forth in the Bridgestone agreement.
(Here's how that would work, from the Bridgestone-Pep Boys deal plan filed with the SEC in October:
(... if at any time after the date of this Agreement and prior to the Offer Closing, the Company receives a Competing Proposal that the Company Board determines in good faith (after consultation with its outside counsel and financial advisor) constitutes or would reasonably be expected to result in a Superior Proposal...
(Then the Company may (after reviewing the proposal in detail) (i) effect a Change of Recommendation or (ii) terminate this Agreement... (and) enter into a definitive agreement with respect to such Superior Proposal... )
(But there's no sign of that happening yet:)
The Board has not changed its recommendation with respect to the Bridgestone transaction, nor is it making any recommendation with respect to the Icahn proposal.
There can be no assurance that the Board will ultimately determine that the Icahn proposal is a Superior Proposal, that the terms of a transaction with Icahn will be the same as those reflected in its proposal or that any transaction with Icahn will be agreed to or consummated.
As previously announced on October 26, 2015, the Company entered into the Bridgestone agreement pursuant to which Bridgestone commenced, on November 16, 2015, a tender offer for all outstanding shares of Pep Boys at $15.00 per share in cash.
The closing of the Bridgestone tender offer is subject to Pep Boys' shareholders tendering at least a majority of the Company's outstanding shares, determined on a fully diluted basis, and other customary closing conditions. Following completion of the tender offer, both companies will, subject to the satisfaction of certain customary closing conditions, complete a merger in which Pep Boys shares that were not tendered in the tender offer will be cancelled and converted into the right to receive $15.00 per share in cash.
Rothschild is acting as the exclusive financial advisor to Pep Boys and Morgan, Lewis & Bockius LLP is acting as legal advisor.