The countdown has begun. Bridgestone, a Japanese tiremaker, has until 5 p.m. New York time Friday to come up with a better offer for Pep Boys, or else billionaire Carl Icahn wins the prize -- a Philadelphia-based car-parts and auto-service chain (and maybe a free oil change).
Investors are betting that Icahn might not be hoping to wrest Pep Boys away as much as he's trying to coerce Bridgestone into raising its bid so that shareholders get a better deal. He's one of them. Icahn's firm bought a 12 percent stake after Bridgestone and Pep Boys had already agreed to a merger at $15 a share back in October. He bid $15.50 this week (which values Pep Boys at about $967 million, including net debt).
Pep Boys' stock traded Wednesday about 5 percent higher than Icahn's offer, sending a signal that the market thinks Bridgestone will cough up more money. And Nikkei reported that the company is preparing to do so. It wouldn't be that costly for Bridgestone. For example, a $1.50 bump -- which would get Bridgestone's offer to $16.50, topping Icahn's bid and the stock's current price -- translates to only about $81 million. Bridgestone has a $29 billion market value and about $4 billion of cash.
As special-situations analyst Louis Meyer points out, if Icahn really wanted Pep Boys, he probably would have offered $16 a share or more. "He didn't make a blow-out bid," said Meyer, who works at Oscar Gruss & Son.
That said, if Bridgestone walks away, it wouldn't be the worst thing for Icahn. He purchased an auto-parts supply business from Uni-Select for $340 million earlier this year, and says there would be synergies with Pep Boys. Plus, as I wrote earlier this week, both Bridgestone and Icahn could still get what they want. Pep Boys has a services piece, which Bridgestone is mainly interested in, and a retail piece, which is what would fit better in Icahn's investments.
According to the filing that details Pep Boys' auction process, the idea was raised at one point that Bridgestone could buy the company and sell the retail assets to Icahn, or Icahn could buy it and sell the services assets to Bridgestone.
Needless to say, while Bridgestone probably isn't happy about Icahn driving up the deal price, it's not a major obstacle to getting the transaction done.
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