Pep Boys merger with The Gores Group is terminated
The Pep Boys -- Manny, Moe & Jack has announced that it has agreed to terminate the proposed merger between Pep Boys and The Gores Group.
Pep Boys had announced in January that it had entered into a definitive merger agreement under which it would be acquired by The Gores Group at a total enterprise value of approximately $1 billion.
Under the terms of the merger agreement, The Gores Group would have acquired all the outstanding common shares of Pep Boys for $15 per share in cash. This represented a premium of 24% over Pep Boys' closing price of $12.08 on January 27, 2012, and a premium of 36% percent over Pep Boys' volume weighted average closing price over the previous 30 trading days.
Pep Boys' board of directors had unanimously approved the merger agreement and recommended that Pep Boys' shareholders approve the transaction.
As settlement for any and all potential claims that Pep Boys could assert under the terms of the merger agreement, The Gores Group has agreed to pay Pep Boys a fee of $50 million and to reimburse Pep Boys for certain merger-related expenses.
The special meeting of Pep Boys’ shareholders, which had been scheduled for May 30, 2012, has been canceled.
“This announcement does not alter our vision to be the automotive solutions provider of choice for the value-oriented customer,” said Mike Odell, Pep Boys’ president and chief executive officer. “We will continue to earn the trust of our customers every day, grow through service and tire centers and be the automotive superstore. The middle 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.”
Odell was referring to the company’s first quarter 2012 preliminary financial results, which as reported on May 1, 2012, showed sales of approximately $524 million to $526 million compared with sales of $513.5 million in 1Q 2011. Operating income was expected to be between $7 million and $9 million compared with operating income of $26.3 million in the same quarter last year. Net income was expected to be at the most $2 million compared with net income of $12.4 million in the first quarter last year. Earnings per share fell from 23 cents to approximately 4 cents.
“Our financial position is solid,” Odell said. “Our current intention is to use our cash on hand and the settlement proceeds to pay down our term loan this year and then to refinance our senior subordinated notes in 2012, both in advance of their respective 2013 and 2014 maturities.”
Pep Boys is scheduling a conference call to discuss its first quarter earnings on June 7 at 8:30 a.m. EST.
The transaction was expected to close in the second fiscal quarter of 2012. Following completion of the transaction, Pep Boys would have become a privately held company and its stock would no longer have been traded on the New York Stock Exchange.
Lee Bird, managing director of operations and consumer practice leader at The Gores Group, said at the time of the announced proposed merger, "Pep Boys' strong brand awareness and management's strategy to be the automotive solutions provider of choice for the value-oriented customer positions Pep Boys for growth. We are excited to help Pep Boys build on this vision and enable the company to take the brand and business to the next level by effectively scaling its powerful differentiated service platform."