PHILADELPHIA (May 30, 2012) — Private equity investor Gores Group L.L.C. has called off its proposed acquisition of Pep Boys – Manny, Moe & Jack, triggering a $50 million payout to Pep Boys.
Los Angeles-based Gores Group declined to comment on its reasons for calling off the acquisition — valued at $1 billion — but the equity group had raised concerns a few weeks ago about the auto service provider's earnings potential after two consecutive lackluster quarters.
The parties cancelled today's scheduled shareholders' meeting.
Regarding the termination, Pep Boys stressed that its “financial position is solid.”
“This announcement does not alter our vision to be the automotive solutions provider of choice for the value-oriented customer,” said Pep Boys President and CEO Mike Odell in a prepared statement.
“We will continue to earn the trust of our customers every day, grow through (our) Service & Tire Centers and be the automotive superstore,” he said. “The mild winter weather, restrained customer spending, delays in implementing new technology and disruption during store conversions have impacted recent results. Nevertheless, we remain on course with our transformation.”
Pep Boys said it intends to use cash on hand and the settlement proceeds to pay down a term loan this year and then refinance senior subordinated notes in 2013, both in advance of their respective 2013 and 2014 maturities.
Gores Group's settlement fee of $50 million covers any and all potential claims that Pep Boys could assert under the terms of the merger agreement, announced on Jan. 30, Pep Boys said, and to reimburse Pep Boys for certain merger-related expenses.
On April 26, Gores Group — citing a “serious deterioration” in Pep Boys business since late January — said it believed the proxy statement was no longer accurate and that the merger meeting should be delayed 30 days to allow it to determine the “cause and extent of the significant downturn.”
Among other things, Gores said it believed that in light of this downturn, the projections provided to the board are no longer accurate, and that Pep Boys may have experienced a material adverse effect or may have violated covenants contained in the merger agreement.
Pep Boys declined to delay mailing the proxy but offered instead to extend the period of time within which the closing of the merger was required to occur following Pep Boys' notice that all conditions to the merger had been satisfied to 15 business days from five. Gores in turn rejected this counterproposal and reiterated its request to delay the mailing of the proxy statement by 30 days.
Under the terms of the merger agreement, Gores Group had offered to acquire all the outstanding common shares of Pep Boys for $15 per share in cash, which represented a premium of 24 percent over the stock´s closing price of $12.08 on Jan. 27, 2012.