Carl Icahn Wins Bidding War to Acquire Pep Boys (PBY)

Icahn-Pep Boys

Carl Icahn won the bidding war against Bridgestone Corp (ADR) (OTCMKTS: BRDCY) (TYO: 5108) to acquire Pep Boys – Manny Moe & Jack (NYSE:PBY), an automotive aftermarket service company.

Bridgestone Retail Operations, LLC (BSRO), a wholly owned subsidiary of Bridgestone decided not to submit a counter offer to purchase Pep Boys after Icahn Enterprises, the master limited partnership and holding company controlled by Mr. Icahn, increased its bid to $18.50 per share or $1 billion in cash.

Bridgestone announced its decision in a statement after the close of the market in the United States on Tuesday.  The Japanese tire manufacturing company’s BSRO agreed to acquire Pep Boys for $17 per share or approximately $947 million.

Under the Agreement and Plan of Merger dated October 26, 2015, a termination fee of $39.5 million will be payable to BSRO by Pep Boys before it can enter into a superior proposal by a third party. The original termination fee was $35 million, but it was amended by the companies when BSRO raised its offer from $15.50 per share to $17 per share.

Icahn, Bridgestone bidding war

Mr. Icahn’s offer his third bid for the company. The activist investors first offered to buy Pep Boys for $13.50 per share. Bridgestone proposed an all-cash acquisition price of $15 a share, which prompted him raise his offer to $16.50 a share. The Japanese tire company submitted a counter offer of $17 per share, prompting the activist investor to increase again its offer to $18.50 per share.

Bridgestone finally backed down from the bidding war against Mr. Icahn since he expressed willingness to bid higher than $18.50 a share if Pep Boys will not agree to any increase in the termination fee payable to the Japanese tire company.

The Board of Directors of Pep Boys said the Mr. Icahn’s proposal to acquire the company is superior to its transaction with BSRO. The aftermarket automotive service company will terminate the Bridgestone agreement given its refusal to match Icahn’s offer.

Pep Boys sent a notice Bridgestone regarding its move to terminate the Agreement and Plan of Merger.

Pep Boys stock performance

The stock price of Pep Boys surged 8.85% to $18.95 per share on Tuesday.  The company gained almost 93% year-to-date, primarily driven by the bidding war between Mr. Icahn and Bridgestone.

Market observers suggested that Mr. Icahn’s determination to acquire Pep Boys demonstrated his confidence or bullishness in the auto parts industry. The activist investor plans to combine Pep Boys with Auto Plus, a competing automotive aftermarket service company he acquired earlier this year.