Pep Boys agrees to be acquired for about $791M
Posted: 1:51 pm Mon, January 30, 2012
NEW YORK — The Pep Boys — Manny, Moe & Jack, an auto parts chain founded more than 90 years ago, has agreed to be taken private by the investment firm The Gores Group for about $791 million.
The $15 per share offer is a 24 percent premium to Pep Boys’ closing price Friday of $12.08. News of the acquisition sent the Philadelphia company’s shares up $2.82, or 23.3 percent, to $14.90 in morning trading on Monday.
Pep Boys brand recognition as well as its moderate pricing appealed to The Gores Group, said Lee Bird, managing director of operations and consumer practice leader at The Gores Group.
“We are excited to help Pep Boys build on this vision,” he said in a statement.
The auto parts company began in 1921 with the 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 web site. 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. He held the post until his death in 1959. Strauss served as president from 1960 to 1973 and remained a board member until he died in 1982.
Pep Boys currently has more than 700 locations in 35 states and Puerto Rico.
Last month Pep Boys reported that its fiscal third-quarter net income rose nearly 23 percent on stronger tire sales and improving service sales. At the time, President and CEO Mike Odell said that 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.
That’s up from the old record of 10.6 years in 2010, and it and continues a trend that dates to 1995, when the average age of a car was 8.4 years, according to a study of state vehicle registration data released earlier this month by the Southfield, Mich.-based Polk automotive research firm.
Management expected to stay on
Pep Boys has faced competition though from companies including AutoZone Inc., Advance Auto Parts Inc. and O’Reilly Automotive Inc.
The Gores Group deal for Pep Boys is worth about $791 million, based on the company’s almost 53 million shares outstanding. The companies put the total enterprise value of the deal at approximately $1 billion.
The agreement includes a provision, which allows Pep Boys to seek and receive alternative offers for a period of 45 days.
Gores Group said that it has fully committed financing for the buyout, which is not subject to a financing condition.
Pep Boys said that Odell, as well as other senior managers, are expected to remain in their positions once the acquisitions closes.
Pep Boys’ board unanimously approved the acquisition, which still needs approval from the company’s shareholders. Pep Boys said it has suspended its quarterly dividend in anticipation of the deal.
The transaction is expected to close in the fiscal second quarter. Once the acquisition is complete, Pep Boys stock will no longer trade on the New York Stock Exchange.
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