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Updated to include analyst comments and updated stock prices
NEW YORK (
Pep Boys(PBY), the nation's leading automotive aftermarket service and retail chain, is being bought by private-equity firm
Gores Group for $15 a share, a 24% percent to Pep Boys' closing price of $12.08 on Friday.
The deal reached with Los Angeles-based Gores Group values Pep Boys at an enterprise value of $1 billion. The deal will need to be approved by shareholders and will undergo a 45-day "go-shop" period, according to a press release. For the Gores Group, a move to buy Pep Boys and its Manny, Moe and Jack brand, which has been around for more than 90 years, may signal a bet on the auto industry and Pep Boys' tires, parts and auto repairs specialty.
"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' CEO Mike Odell of the deal, which is expected to close in the second quarter of 2012.
The company was reported to have hired investment bankers to explore a sale in early 2011, following years of speculation that it would look for a buyer. But even with a month and a half "go-shop" period, analysts expect Monday's takeover offer to be final. "We do not expect another leverage buyout firm to counter-offer Gores Group and thus believe that the $15/share bid will be final," wrote Cabrera Capital Markets analyst Cid Wilson.
Pep Boys' shares rose to $14.94, just under a 24% rise and slightly below the offer price in late afternoon trading on news of the deal. The Philadelphia-based company's shares fell nearly 20% in 2011 even as its annual sales and profit rose to $2 billion and $36.6 million in 2011, respectively.
Prior to the deal, Pep Boys warranted a $13.60 a share average price target, according to consensus estimates compiled by
Bloomberg, reflecting expectations for the coming year of $2.2 billion in sales and $50 million in profit.
Founded in 1921 the "Pep Boys" Emanuel "Manny" Rosenfeld, Maurice "Moe" Strauss, Moe Radavitz and Graham "Jack" Jackson, the company has more than 700 auto repair and parts stores in 35 states and Puerto Rico. The company competes against
O'Reilly Automotive(ORLY) and
Advanced Auto Parts(AAP) and
Autozone (AZN), among others in the automotive aftermarket.
Pep Boys' largest shareholder is
North Run Capital Management with a 8.54% stake. Other large holders include
River Road Asset Management and
Vanguard Group, each with stakes over 5%.
For the Gores Group, the move isn't its first foray into the autos market. In May, the private-equity firm bought auto body company
Sage Automotive Interiors for an undisclosed price, and in 2007 the company bought vehicle logistics specialist
United Road Services for $110 million.
Monday's Pep Boys deal will by fully financed by the Gores Group and won't be subject to any financing conditions. If the deal is completed, it is expected that Pep Boys CEO Odell and other members of the senior management team will continue in their roles at the company.
Last week, German auto parts giant
Robert Boschbought the automotive aftermarket diagnostics division of
SPX Corp. (SPW) for $1.15 billion.
The deals may be a vote of confidence in the U.S. autos industry, just as
General Motors (GM) regains the global sales lead and
Ford (F) and
Chrysler record double-digit sales growth in 2011.
In 2011, General Motors passed
Toyota (TM) as the top selling global automaker, reclaiming the top spot less than three years after its Treasury-assisted bankruptcy. Meanwhile, Ford saw its branded auto sales grow 17% in 2011 and Chrysler saw 26% auto 2011 sales growth, according to year-end results. Overall, auto sales rose 10% in 2011.
For more on Pep Boys' shares, see
Whitney Tilson's T2 Partners portfolio.
-- Written by Antoine Gara in New York