NEW YORK -- U.S. auto parts retailer Pep Boys-Manny, Moe & Jack said its board determined that Carl Icahn's offer to buy the company for $15.50 per share could result in a "superior proposal" compared with Bridgestone Corp.'s current offer.
Bridgestone offered to buy Pep Boys for $15 per share in October.
The board has not changed its recommendation with respect to the Bridgestone transaction, nor is it making any recommendation with respect to the Icahn proposal, the company said.
While that doesn’t mean Pep Boys is terminating its agreement with Bridgestone or changing its recommendation that investors vote for that bid, it lets the company further consider Icahn’s offer.
As a result, traders in Pep Boys shares today were wagering that the bidding war for the automotive-parts chain may just be beginning.
Philadelphia-based Pep Boys shares rose 24 cents, or 1.5 percent, to close the day at $16.30, well above Icahn's $15.50 offer.
Investors are betting that Icahn, Bridgestone or someone else will be willing to pony up for a well-known brand with 800 locations in 35 states. While Pep Boys’ sales growth has slowed and its profitability has become sporadic in recent quarters, the chain offers a quick expansion opportunity for anyone looking to benefit from an aging U.S. car fleet.
Before making his $863 million offer for the whole company, Icahn had been pursuing Pep Boys’ retail business. Icahn on Friday said that Pep Boys should sell its retail business to Auto Plus, a competitor he owns, saying the combination “presents an excellent synergistic acquisition opportunity."
The activist investor, who disclosed a 12 percent stake in Pep Boys, said at the time that his representatives had and would continue to have talks with Pep Boys regarding “potential transactions” involving its retail segment.
Icahn may still just be interested in Pep Boys’ retail operation and plan to sell the tire and services division to other interested parties like Bridgestone, said Bret Jordan, an analyst at Jefferies LLC.
“I wouldn’t rule out that he owns it ultimately, but I wouldn’t be surprised if he owned it with the intention of auctioning off the service and tire business,” said Jordan, who has a hold recommendation on Pep Boys.
Icahn’s bid for the whole company isn’t subject to due diligence, financing or antitrust conditions, according to a letter from Icahn Enterprises included in a filing on Monday. The firm offered to enter immediately into the exact merger agreement that Pep Boys executed with Bridgestone, which proposed a deal of roughly $835 million.
A Pep Boys representative didn’t immediately respond to a voice-mail message. Bridgestone declined to comment beyond an e-mailed statement saying it was working to finalize its acquisition of the company.
Bridgestone, the Tokyo-based tire giant, sees Pep Boys as a key piece of its push deeper into the U.S., where it already operates more than 2,200 tire and automotive centers. The merger would create the world’s largest chain of its kind.
Pep Boys on Monday confirmed that it had received notice of Icahn’s investment and said it may threaten shareholders’ ability to benefit from the Bridgestone deal.
Pep Boys also identified Icahn as the party that it disclosed in merger documents that had made a $13.50-a-share offer for the company. Icahn on Oct. 22 declined to increase that bid and hadn’t since provided the company with a new proposal, Pep Boys said.
Auto Plus is an aftermarket parts supplier that Icahn acquired this year from Canada’s Uni-Select Inc. for about $340 million, and which he is using to drive consolidation in the industry. The company aims to be one of the largest automotive aftermarket companies in the U.S. in the next five years, according to its website.
Icahn's interest in the automotive aftermarket runs deeper: He also holds a dominant 82 percent stake in Federal-Mogul Holdings Corp., which owns about 20 major aftermarket auto parts brands such as Champion Spark Plugs, MOOG steering parts, ANCO wiper blades and Wagner brake parts.
Federal-Mogul in October said it posted a net loss of $52 million on revenue of $5.6 billion during the first nine months of the year -- down from net income of $17 million on revenue of $5.5 billion during the same period last year. The aftermarket business, known as the Motorparts division, said its nine-month operating earnings fell to $152 million from $168 million the year before.
It was not immediately clear how much business Federal-Mogul does with Pep Boys and Auto Plus.
Icahn Enterprises is a publicly traded master-limited partnership that holds stakes in the billionaire activist’s investments in industries including autos, energy, metals, rail cars, casinos, food packaging, real estate and home fashion. Icahn, 79, is worth about $21 billion, according to the Bloomberg Billionaires Index, and primarily invests his own fortune, rather than relying on money from outsiders.
Bloomberg, Reuters and Philip Nussel of Automotive News contributed to this report.