Pep Boys—Manny Moe & Jack has agreed to be taken private
by private-equity firm Gores Group in a deal that values the auto-repair
company at roughly $800 million and puts an end to long-running speculation
over its future.
Reports early last year suggested the retail auto-parts and
service company was considering putting itself up for sale, although Pep Boys
never commented on the speculation.
Pep Boys shares shot up 24% to $14.93 in Monday composite
trading on the New York Stock Exchange, nearing the $15-a-share offer from
Gores Group. The shares closed Friday at $12.08, giving Gores's offer a 24%
premium over the Friday closing price. Pep Boys stock hasn't traded above the
offer price since late 2007.
Pep Boys' board unanimously approved the agreement and
recommended that its shareholders follow suit. The Philadelphia-based company,
founded more than 90 years ago, said the enterprise value of the deal is
roughly $1 billion. Gores is putting $489 million of equity into the deal.
"Our board firmly believes that this transaction is in
the best interests of all of our stakeholders and delivers an ongoing
commitment to excellence for our customers and employees," said Pep Boys
Chief Executive Mike Odell.
Pep Boys' brand recognition as well as its moderate pricing
appealed to Gores, said Lee Bird, managing director of operations and consumer
practice leader at Gores.
The agreement allows for a 45-day "go shop" period
in which Pep Boys can consider other offers. The company also said in light of
the proposed transaction it won't host a conference call to discuss financial
results for the 2011 fiscal year but intends to file its year-end results with
the Securities and Exchange Commission.
The auto-parts company began in 1921 with Naval buddies and
original Pep Boys Emanuel "Manny" Rosenfeld, Maurice "Moe"
Strauss, Moe Radavitz and Graham "Jack" Jackson. Their first store
opened in Philadelphia under the name Pep Auto Supplies, according to the company's
website. Its name was changed around 1923 after Strauss noticed during a trip
to California that many successful businesses there used first names.
Radavitz and Jackson both left the company early on. When
Pep Boys went public in 1946, Rosenfeld served as its first corporate president.
Pep Boys, which has more than 700 stores, has faced
competition from companies including AutoZone Inc., Advance Auto Parts Inc. and
O'Reilly Automotive Inc.
Last month Pep Boys reported that its fiscal-third-quarter
net income rose nearly 23% on stronger tire sales and improving service sales.
At the time, Mr. Odell said the improved business was due in part to new
marketing, lower gas prices and pent-up demand.
Auto-parts suppliers have done relatively well during the
recession and prolonged economic downturn, as many consumers have held on to
their cars longer and sought out repairs instead of purchasing new cars. The
average age of a car or truck in the U.S. hit a record 10.8 years last year as
job security and other economic worries weighed on consumers' minds.
Gores Group said it has fully committed financing for the
buyout, which is expected to close in the second quarter. Once the acquisition
is complete, Pep Boys stock will no longer trade on the New York Stock
Exchange.
