Pep Boys Agrees to $947 Million Bridgestone Bid, Shuns Icahn

  • Icahn says chain still undervalued, vowed to top $1.01 billion
  • Bridgestone seeking U.S. expansion as parts industry booms

Pep Boys agreed to a $947 million takeover offer from Bridgestone Corp., shunning a competing bid from billionaire investor Carl Icahn that had promised a higher price.

Pep Boys said Thursday in a statement that its board no longer considers Icahn’s most recent offer -- which included a vow to beat any bid up to $1.01 billion -- to be a superior proposal.

The agreement shows Pep Boys is willing to accept a lower price to complete the tie-up with Tokyo-based Bridgestone that it originally agreed to in October. Bridgestone’s new offer is $17 a share. While that exceeds Icahn’s most recent bid of $16.50 a share, it’s still below the maximum $18.10 a share that he has said he is willing to pay.

“We’re happy that we have materially enhanced value for all shareholders,” Icahn, 79, said in an interview. “Merry Christmas to all of them.”

The activist investor also said Pep Boys is still undervalued and that the retailer’s board passed up the chance for more.

“We cannot understand the actions of the directors in that they know we were willing to offer a lot more than $17,” he said.

The takeover battle for Pep Boys underscores the confidence Icahn and Bridgestone have in the U.S. auto-parts retailing industry, which has benefited as an aging vehicle fleet spurs demand.

Both Bridgestone and Icahn are seeking to expand their presence in the tire and automotive-repair sector by adding Pep Boys’ 800 locations across more than 30 states. Bridgestone operates more than 2,200 tire and automotive centers in the U.S. Icahn planned to combine Pep Boys with the Auto Plus chain that he acquired earlier this year.

Expecting More

Pep Boys rose 0.6 percent to $17.51 in New York on Thursday, before Bridgestone’s new proposal was made public, indicating that traders expected a higher offer. Shares of the Philadelphia-based company, whose full name is Pep Boys -- Manny, Moe & Jack, are up 78 percent this year, largely driven by the bidding war. Bridgestone’s stock declined as much as 0.7 percent in Tokyo trading on Friday.

Buying Pep Boys, which has an operating margin of about 1.3 percent, may drag down Bridgestone’s margin in the U.S., which stands at more than 10 percent, said Kosuke Matsuda, an analyst at Haitong International Securities Group.

“If Bridgestone does acquire Pep Boys in the end, it’s going to be negative for the company because it’s going to dilute their profitability in the U.S.,” Matsuda said.

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