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May 30 (Bloomberg) -- Pep Boys -- Manny, Moe & Jack, the auto-parts chain, slumped after ending its proposed $1 billion sale to Gores Group LLC, which questioned the deal earlier this month following lower-than-expected earnings.

Pep Boys plunged 20 percent to $8.89 at the close in New York. The shares were little changed this year before today.

Gores Group agreed to pay Pep Boys a fee of $50 million and to reimburse it for certain merger-related expenses as settlement “for any and all potential claims that Pep Boys could assert under the terms of the merger agreement,” Philadelphia-based Pep Boys said in a statement yesterday.

The Los Angeles-based private-equity firm had agreed to buy Pep Boys for $15 a share in January. On May 1, Pep Boys disclosed first-quarter sales and net income that both trailed analysts’ estimates. It also said Gores had asked to delay a shareholder vote set for May 30 to examine the results for a possible “material adverse effect” that could void the deal. Pep Boys declined the request.

The company also said it canceled its special meeting of shareholders scheduled to be held today.

“The mild winter weather, restrained customer spending, delays in implementing new technology and disruption during store conversions have impacted recent results,” Chief Executive Officer Mike Odell said in the statement. “Nevertheless, we remain on course with our transformation.”

‘Financial Position’

The company’s “financial position is solid” and it intends to use cash on hand and the settlement proceeds to pay down its term loan this year and then to refinance senior subordinated notes in 2013, Odell said.

Pep Boys will hold a conference call on June 7 to discuss its first-quarter earnings, according to the statement.

The retailer traces its roots to 1921 when four Navy friends pooled $800 to open an auto-parts supply store in Philadelphia, according to the company’s website. Since becoming a publicly traded company 65 years ago, it has grown to more than 700 locations that repair vehicles and sell parts such as tires, brake pads and windshield wiper blades.

In March, Midas Inc., which operates its namesake and SpeeDee automotive service centers, agreed to be acquired by tire supplier TBC Corp. for about $173 million.

To contact the reporters on this story: Ben Livesey in London at; Robin Ajello in New York at

To contact the editor responsible for this story: Robin Ajello at

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