NASHVILLE, Tenn.—Bridgestone Americas Inc.'s $835 million offer to buy Philadelphia-based tire retailer/auto service provider Pep Boys-Manny, Moe & Jack will create a retail network of more than 3,000 stores and annual revenue estimated at more than $5 billion.
Bridgestone is offering $15 a share for Pep Boys, which the Nashville-based tire maker said is a premium of 23 percent over Pep Boys' closing price of $12.15 on Oct. 23 and 62 percent over Pep Boys' unaffected (prior to market speculation of a potential transaction) price of $9.25 on May 19.
The transaction, made public Oct. 26, is expected to close in early 2016.
“Bridgestone and Pep Boys are two leading companies that share a proud heritage in the American automotive services industry,” said Gary Garfield, CEO and president of Bridgestone Americas. “Our shared expertise and commitment to our customers and employees will help us build an even stronger organization.”
Philadelphia-based Pep Boys operates 801 retail locations with 7,500-plus service bays in 35 states and Puerto Rico, including 234 tire-centric Service & Tire Center stores. The tire centers are clustered predominantly in major metro areas such as Atlanta, Chicago, Houston, Philadelphia, Los Angeles, San Diego, Seattle and Tallahasee and Tampa, Fla.
Fiscal 2014 sales were $2.08 billion, putting the per-store average at $2.6 million. Tires accounted for 18.1 percent of the firm's sales last year, vs. 58.4 percent for parts and accessories and 23.5 percent for service labor.
The company reported operating and net losses last year of $18.9 million and $27.3 million, respectively.
The net loss contrasted with net income of $6.9 million in fiscal 2013. The operating result also was negative, Pep Boys said, dropping $18.9 million into the red vs. an operating profit of $22.3 million last year.
Pep Boys stores carry a dozen-plus brands of tires, including BFGoodrich, Carlisle, Continental, Cooper, Falken, General, Hankook, Maxxis, Michelin, Mickey Thompson and Pirelli, as well as its own brands, Cornell, Definity and Futura, made by Cooper Tire & Rubber Co.
Pep Boys' board of directors has been evaluating potential commercial alternatives for the company since June, looking at ways to enhance shareholder value that included a possible sale, merger or other form of business combination or strategic transaction.
Bridgestone Americas' retail presence in the U.S. stands at more than 2,200 locations, operating under the Firestone Complete Auto Care, Tires Plus, Hibdon Tires Plus and Wheel Works brand banners.
Bridgestone also claims to be represented by more than 5,000 independent dealers and distributors in the U.S.
In comments made to Pep Boys employees during an online “town hall meeting,” Mr. Garfield said Bridgestone in particular noted that Pep Boys:
c Stores “appear to be well-managed, which speaks to the skills of your field and store teams”;
c Has a strong e-commerce model, “which is something we also are accelerating”;
c B2B model seems to be very mature; and
c Has a “very efficient” parts-sourcing strategy.
In prepared remarks, Pep Boys CEO Scott Sider said the transaction “delivers a significant premium for Pep Boys' shareholders and offers new opportunities for our employees across a bigger business. We look forward to working with the Bridgestone team for a smooth and successful transition.”
Under the terms of the agreement—which has been approved unanimously by the boards of both Bridgestone and Pep Boys—a wholly owned subsidiary of Bridgestone Retail Operations will carry out a tender offer for all outstanding shares of Pep Boys at $15 per share in cash.
The completion of the tender offer will be conditional on Pep Boys' shareholders' tendering at least a majority of Pep Boys' outstanding shares, determined on a fully diluted basis, and other customary closing conditions, including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
Following completion of the tender offer, both companies will complete a merger in which Pep Boys shares that were not tendered in the tender offer will be cancelled and converted into the right to receive $15 per share in cash. Following completion of the transaction, Pep Boys will be wholly owned by and operate under Bridgestone Retail Operations. Pep Boys' stock will no longer trade on the New York Stock Exchange.
Bridgestone said it expects Pep Boys' Store Support Center will remain in Philadelphia for the time being, pending completion in 2017 of the Bridgestone headquarters office in Nashville, where the tire maker plans to consolidate its retail and non-tire business units with the tire business.
“We will need to examine how the SSC work fits with this strategy and what is best for the business and customer experiences,” Bridgestone said.
In the town hall meeting comments, Mr. Garfield said Pep Boys' do-it-yourself (DIY) business is an activity with which Bridgestone has little experience.
“We are already working to get a better understanding of all the opportunities this business could offer and will be in a better place to elaborate once the deal closes,” he said.
J.P. Morgan Securities L.L.C. is acting as the exclusive financial adviser to Bridgestone. Jones Day is acting as legal adviser to Bridgestone. Rothschild is acting as the exclusive financial adviser to Pep Boys and Morgan, Lewis & Bockius L.L.P. is acting as legal adviser to the chain.
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