By Dustin Walsh, Crain News Service
DETROIT (Feb. 2, 2016) — When Federal-Mogul Holdings Corp. scrapped its plan in January to split into two entities, it raised eyebrows because it came right after its largest shareholder agreed to acquire the tire, auto service and parts chain Pep Boys – Manny, Moe & Jack.
So far, any connection between the two moves remains theoretical, but the timing has raised more questions than answers about the future of the longtime auto supplier of engine parts and well-known aftermarket brands such as Champion spark plugs, Anco wiper blades and Moog steering parts.
Billionaire Wall Street investor Carl Icahn, an 82 percent stakeholder in Federal-Mogul, won a $1.03 billion bidding war for Philadelphia-based Pep Boys, and experts have speculated he'll use that company as a mainline for Federal-Mogul parts but fear his vertical integration strategy will hurt the company over the long term.
Pep Boys' 800 stores, paired with Mr. Icahn's other aftermarket retailer, the 278-location Auto Plus, would make up the fifth-largest retail auto parts chain in the U.S. Even with Pep Boys' stores, Auto Plus would be significantly smaller than rivals Advance Auto Parts Inc., Autozone Inc. and O'Reilly Automotive Inc.
The decision to call off the split and Mr. Icahn's Pep Boys acquisition comes in the midst of global financial headwinds faced by Federal-Mogul.
Colleen Hanley, vice president of communications and investor relations for Federal-Mogul, said currency exchange from Brazil, Europe and Asia were the deciding factors in ending the split.
Currency fluctuations evaporated 10 percent of its earnings in the third quarter of 2015, according to an investor conference call.
Ms. Hanley declined to discuss whether the Pep Boys acquisition played a part in the decision.
Federal-Mogul announced the split 16 months ago through a tax-free distribution of shares from its aftermarket parts division, which it renamed Federal-Mogul Motorparts in May 2014, to current Federal-Mogul shareholders.
The company began restructuring its aftermarket parts division in 2012. Federal-Mogul historically underperformed in the aftermarket sector, which led to red ink for the company as a whole, including a $161 million loss in 2014, though its aftermarket sales were up 10 percent.
Earlier this year, Federal-Mogul launched its Garage Gurus program to teach auto technicians the value of its aftermarket brands. The program was designed to boost its aftermarket parts sales.
But aftermarket revenue fell an additional 5 percent in the third quarter of 2015.
The U.S. automotive aftermarket is forecast to grow at an annual rate of 3.4 percent through 2017, according to a joint review by the Automotive Aftermarket Suppliers Association and the Auto Care Association. Total aftermarket sales are projected to grow from $238.4 billion in 2013 to $273.4 billion in 2017, according to the group.