MONDAY PM UPDATE: Keith Cozza, who runs billionaire corporate raider Carl Icahn's investment firm, sends this letter to Pep Boys today: "I am writing on behalf of the Board of Directors of Icahn Enterprises L.P. to make a proposal for a negotiated transaction whereby Icahn Enterprises would acquire all of the outstanding shares of common stock of The Pep Boys – Manny, Moe & Jack for $15.50 per share in cash," beating Bridgestone's Oct. offer by 50 cents a share and not requiring any due-diligence review.
"We are prepared to enter immediately into the exact same merger agreement that Pep Boys executed with Bridgestone Retail Operations LLC. In addition, we will enter into any reasonable further agreements that you may require in order to provide greater certainty of closing," Cozza added. "We believe our proposal is clearly superior to the $15.00 per share Bridgestone transaction and that our financial wherewithal to close expeditiously is indisputable. We are prepared to meet with you immediately to negotiate and document this transaction."
No immediate comment from Pep Boys or Bridgestone. Pep Boys had traded above Icahn's new price but quickly slipped lower as investors puzzled on who'll bid next. "Icahn buys and sells a lot of companies. I don't think he is going to stay in this business longterm; he's trying to screw Bridgestone into paying more money," said Robert Costello, head of $100 million-asset Costello Asset Management, Huntingdon Valley. Likely result: higher costs and more cuts at Pep Boys' Philly HQ when the deal is done -- and the buyer will still have to compete with tough rivals like Autozone and O'Reilly in a flat parts market, Costello added.
MONDAY AM: Pep Boys shares traded above $16 this morning -- the Philadelphia-based auto-parts seller's highest price since 2007 and a premium to Bridgestone Corp.'s planned $15-a-share deal to buy the chain -- on investors' hopes that billionaire corporate raider Carl Icahn's purchase of one-eighth of the company will force its value higher.
In those earlier talks, it took Icahn took six months to reach $13.50, and he hasn't sweetened its offer, Pep Boys added. The company suspects "Icahn may be taking these actions to obtain negotiating leverage" and "frustrate" Bridgestone's ability to resell Pep Boys assets for a better price -- reinforcing speculation by investors and analysts that Bridgestone already intends to split Pep Boys' stores from its garages, tires and corporate-vehicle service units.
One of the richest Americans, Icahn, 79, controls publicly-traded Icahn Enteprises and through it is a major owner of Apple, PayPal, and equipment makers Hologic (x-ray), Nuance Communications (speech recognition) and Cheniere Energy (liquified natural gas lerminals),
FRIDAY NEWS: Shares of Pep Boys - Manny Moe & Jack rose after billionaire corporate raider Carl Icahn stepped in front of Bridgestone Corp's planned $835 million purchase of the money-losing, 800-store Philadelphia-based auto repair chain.
Bridgestone wants to tack Pep Boys stores and garages onto its larger Firestone chain. But Icahn says he has bought one-eighth of Pep Boys shares, and that he wants Pep Boys to sell its ailing retail stores to his Auto Plus store chain, leaving Bridgestone to keep the garages. Analysts have speculated Bridgestone might not want the retail outlets once it closes the deal; Icahn wants to speed up the decision.
Pep Boys sales have been flat and its former profits have steadily fallen since 2010. As Americans bought more cars than ever in the past two years, fewer people have needed off-the-shelf do-it-yourself repair products, the company told investors in September. Indeed, DIY accounts for just 20% of the company's sales; the rest includes tires, garage service and corporate auto fleet work. Pep Boys has been trying to improve its online sales.
The more money buyers end up spending to purchase the chain, the more pressure they will feel to cut costs at the company's Allegheny Ave. headquarters and its regional distribution centers. Bridgestone's store chain is run from Nashville, and the company is expected to consolidate management functions there.