Billionaire investor Carl Icahn on Monday upped the ante in his bid to win Pep Boys - Manny, Moe, and Jack, offering $18.50 a share in cash, or more than $1 billion.
In a news release issued Monday evening, the Philadelphia-based auto supply and repair chain said its board of directors, after consulting with its legal and financial advisers, had determined that the new offer from Icahn Enterprises constituted a "superior proposal" as defined in its agreement and merger plan with Bridgestone Retail Operations L.L.C.
Pep Boys said it delivered notice to Bridgestone of the Pep Boys intent to change its recommendation and to terminate the Bridgestone agreement. The notice sets 5 p.m. Thursday as a new deadline for Japan-based Bridgestone to top Icahn's offer.
In announcing its new offer Monday, Icahn Enterprises said it would be willing to pay the higher price, as long as Pep Boys did not increase above the current $39.5 million the penalty it has to pay Bridgestone for selling to anyone else.
Icahn's boosted offer sent Pep Boys' stock up as much as 7.1 percent, to $18.65 in late trading on the New York Stock Exchange, but shares closed at $17.41 Monday, down $0.10 or 0.57 percent.
Previously, Icahn had said he would pay $18.10 a share for the company.
Last week, Pep Boys agreed to a sweetened, $17-a-share takeover offer from Bridgestone. Under that deal, the tire giant had until Jan. 12 to pay $17 a share, or about $950 million, to buy Pep Boys.
The sale would give Bridgestone, which operates 2,200 U.S. tire stores and garages under the Firestone brand and other names, control of Pep Boys, its warehouses, tire and fleet-service businesses, and its 801 stores and garages in 35 states.
The takeover battle for Pep Boys underscores the confidence that Icahn and Bridgestone have in the U.S. auto-parts retailing industry, which has benefited from an aging vehicle fleet on American roads.
Both Bridgestone and Icahn are seeking to expand their presence in the tire and automotive-repair sector by adding the Pep Boys' locations. Icahn would combine Pep Boys with the Auto Plus chain, which he acquired earlier this year.
The agreement with Bridgestone reached last week would require Pep Boys to pay Bridgestone an extra $39.5 million if the Philadelphia company drops it for a better bid. Because that would cut into the profit from selling to Icahn or anyone else, the requirement gave Pep Boys' board an incentive to stick with Bridgestone unless a new offer came in significantly higher.
A sale to Bridgestone would likely mean another blow to industrial Philadelphia - consolidation of headquarters work from Pep Boys' Allegheny Avenue offices, which employ 500, to the buyer's U.S. offices in Nashville.
As a Pennsylvania company, Pep Boys has more leeway than firms that operate under New York, Delaware, or other state corporation laws in choosing a lower offer for reasons other than share price. But Pep Boys' board has not claimed state "stakeholder" rights during the Icahn-Bridgestone bidding war.
Bridgestone had to increase its offer from an earlier $15.50 a share to win Pep Boys' current favor over Icahn.
In a statement before Icahn's new offer, Stu Crum, president of Nashville-based Bridgestone Retail Operations, said a merger would unite two companies that claim roots in the early days of the American auto industry.
Besides Firestone, Bridgestone operates stores under the Hibdon and Wheel Works brands; its tires are also sold by thousands of independent dealers and stores.
Pep Boys' 801 locations include 567 Supercenter store/garage combinations, as well as 234 service and tire garages, operating in parts of the country under the Discount Tire, Big 10, and Florida Tire brands.
If ultimately victorious, Bridgestone would benefit from adding Pep Boys garages. But it might end up selling the Pep Boys' retail parts business, which accounts for about 20 percent of the chain's $2 billion in yearly sales, to a national store chain such as O'Reilly Auto Parts, analyst Ali Faghri told clients at Sterne Agee & Co. in a report last week.
If a successful Bridgestone puts the Pep Boys stores on the market, Icahn would be another potential buyer, because he bought the smaller Auto Plus chain earlier this year and could cut costs by consolidating.