Philadelphia's iconic Pep Boys - Manny, Moe & Jack automotive-parts chain has agreed to a $947 million takeover offer from Bridgestone Corp., shunning a competing bid from billionaire investor Carl Icahn, who had promised a higher price.
Pep Boys said Thursday evening in a statement that its board no longer considered Icahn's most recent offer - which included a vow to beat any bid up to $1.01 billion - a superior proposal.
The agreement shows that Pep Boys is willing to accept a lower price to complete the tie-up with Japan-based Bridgestone, which runs the 2,000-garage Firestone chain from offices in Tennessee. Bridgestone originally agreed in October to pay $15 a share, or more than $800 million, for Pep Boys.
The company's winning offer is $17 a share. While that exceeds Icahn's most recent bid of $16.50 a share, it is still below the maximum $18.10 a share that the activist investor said Wednesday he was willing to pay. However, Icahn said his top bid was to expire Thursday night.
The takeover battle for Pep Boys underscores the confidence that Icahn and Bridgestone have in the U.S. auto-parts retail industry, which is poised for one of its best years ever as an aging vehicle fleet spurs demand. Both Bridgestone and Icahn were seeking to expand their presence in the tire and auto-repair industry by adding Pep Boys' 800 locations across more than 30 states. Icahn bought the Georgia-based Auto Plus chain of 230 parts stores earlier this year and wanted to add the Pep Boys outlets.
In a short Christmas Eve trading session, Pep Boys stock closed at $17.51, up 11 cents a share. Stock trading ended at 1 p.m. Thursday, well before Bridgestone's fresh proposal was made public, indicating that traders expected the higher offer. Pep Boys' shares are up 78 percent this year, largely driven by the bidding war for the company.
Pep Boys employs 14,000, including 500 at its Allegheny Avenue headquarters. In addition to its auto-parts stores, the company operates warehouses and fleet-service and tire operations.
Analyst Ali Faghri told clients of Stern Agee & Co. in a report early Thursday that he did not think Bridgestone or Icahn would keep Pep Boys intact.
"The ultimate outcome will involve the breakup of the service and retail operations," Faghri wrote.
If Bridgestone won and kept the garages, it might sell the stores to the O'Reilly Auto Parts chain, which has an interest in bulking up its presence in the Northeast, Pep Boys' home market, Faghri said.
Had Icahn prevailed, the analyst said, he would have kept the parts stores and sold Pep Boys garages to Monroe Muffler.
Both Monroe and O'Reilly considered deals with Pep Boys before Bridgestone announced its October agreement, and both have expanded profitably through previous acquisitions, Faghri wrote.
Pep Boys, with more than $2 billion in yearly sales, has reported slow same-store sales and weak profits in recent years and has sought buyers several times over the last 10 years.
The company started in 1921 in West Philadelphia, opening its first store at 63d and Market Streets.
The chain, with its cartoon logo of three of the founders, quickly became a fixture in neighborhood and suburban shopping centers.
Staff writer Joseph N. DiStefano contributed to this article, which also includes information from Bloomberg News.