The Pep Boys – Manny, Moe & Jack (NYSE: PBY) announced this morning that its Board of Directors will sell the company to The Gores Group. Under the terms of the merger agreement, Gores will acquire all the outstanding common shares of Pep Boys for $15.00 per share in cash – a 24% premium above the Pep Boys’ closing price of $12.08 on Friday and a premium of 36% over Pep Boys’ volume weighted average closing price over the last 30 trading days. Pep Boys sells tires, automotive maintenance and repair, and parts at more than 700 locations in 35 states and Puerto Rico.
The proposed transaction has already interested at least one legal firm trolling for business. Tripp Levy, a securities law firm, immediately put out a notice to investors that there are “potential claims of breaches of fiduciary duty and other violations of state law” against the board of directors of Pep Boys in connection with the sale. There likely will be more such allegations from firms looking to garner legal fees.
However, the agreement does provide for a 45-day “go-shop” period and contains customary closing conditions, including receiving the approval of Pep Boys’ shareholders and all applicable regulatory approvals. A special meeting of Pep Boys’ shareholders will be held following the filing of a definitive proxy statement with the U.S. Securities and Exchange Commission.
The sale is currently expected to close in the second fiscal quarter of 2012. Following completion of the transaction, Pep Boys will become a privately held company and its stock will no longer trade on the New York Stock Exchange. The Gores Group has fully committed financing so the transaction is not subject to a financing condition.
In a statement the Pep Boys’ Board of Directors said it unanimously approved the merger agreement and recommended that Pep Boys’ shareholders approve the transaction. It is expected that Mike Odell, Pep Boys’ President & Chief Executive Officer and other members of the senior management team will continue in their roles with the Company after the completion of the transaction.
“Partnering with The Gores Group delivers a significant premium for Pep Boys’ shareholders and ensures a strong foundation for us to continue our expansion,” said Odell. “Our Board firmly believes that this transaction is in the best interests of all of our stakeholders and delivers an ongoing commitment to excellence for our customers and employees.”
The automotive aftermarket service and retail chain in its latest financial results said net earnings for the first nine months of 2011 increased to $33.3 million ($0.62 per share) from the $28.3 million ($0.53 per share) recorded in the same period last year. The 2011 results include, on a pre-tax basis, a $0.4 million asset impairment charge and $1.5 million of acquisition related expenses and benefited from the release of $3.6 million of state tax valuation allowances.
Pep Boys said because of the proposed transaction, it will not host a conference call to discuss financial results for the 2011 fiscal year, but intends to file its year-end results with the SEC. In addition, Pep Boys has suspended its quarterly dividend of $0.03 a share.
The Gores Group was founded by Alec E. Gores in 1987, as a private equity firm concentrating on acquiring controlling interests in mature and growing businesses. Since its inception, Gores has acquired 80 companies worldwide with combined revenues in excess of $15 billion.