Pep Boys to Bridgestone: New deal or no deal

The Board of Directors at US automotive aftermarket retailer The Pep Boys – Manny, Moe & Jack has declared the US$15.50 per share merger agreement received by Icahn Enterprises superior to the $835 million Bridgestone Retail Operations was prepared to pay, not least because it isn’t subject to due diligence or financing conditions, and it contains a ‘hell or high water’ anti-trust covenant. Pep Boys have now lobbed the ball back into Bridgestone’s court, and the tyre maker has two days to come back with a better offer.

Pep Boys informed Bridgestone of its Board’s determination on 8 December and shared its intention to terminate the agreement between Pep Boys and Bridgestone. Delivery of this notice commenced a three business day period during which Pep Boys may not change its recommendation nor terminate the Bridgestone agreement. Bridgestone also has the right to propose new merger terms to Pep Boys during this period, which will expire at 5:00pm (EST) on Friday 11 December 2015.

The question now is whether or not Bridgestone is willing to pay a higher price for Pep Boys. The tyre maker’s original plan was to merge the Pep Boys’ 800 or so retail sites with its own US operations, most likely the Firestone Complete Auto Care network, which currently boasts more than 1,600 outlets. While the company still views the Pep Boys deal as one that would benefit both it and Pep Boys, we must now wait to see Bridgestone is willing to enter a bidding war with Icahn.

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