Pep Boys Auto Parts Agrees to Be Acquired by Gores Group for $791 Million

The cash offer of $15 a share is 24 percent higher than Pep Boys’ closing price on Jan. 27, the companies said today in a statement. Including debt, the deal is valued at $1 billion and is expected to be completed by the end of the fiscal second quarter of 2012, according to the statement.

The transaction is the largest in the auto-parts retailing sector since 2008, according to data compiled by Bloomberg. Pep Boys, founded in 1921, has more than 7,000 service bays in 700 locations across the U.S. Pep Boys halted efforts to sell itself last year after failing to attract high enough bids, two people with knowledge of the negotiations said in February.

Pep Boys, based in Philadelphia, rose 23 percent to $14.89 at 11 a.m. in New York and had declined 18 percent last year.

The company obtained commitments for $875 million in loans to support its acquisition by Los Angeles-based Gores Group. Barclays Plc, Credit Suisse Group AG and Wells Fargo & Co. are providing the financing, the company said in a regulatory filing today.

Today’s offer values Pep Boys at about 5 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the median of 6.1 in 11 deals for auto-parts retailers worldwide over the past decade.

Change in Leadership

Pep Boys hired Goldman Sachs Group Inc. (GGS) about six years ago to weigh its options after investor Barington Capital Group LP lobbied for change in leadership.

The company, led by Chief Executive Officer Michael Odell, reported revenue of $1.99 billion in the fiscal year ended January 2011, a 4.1 percent increase from the previous year.

Pep Boys obtained a $320 million term loan B in 2006 that matures in October next year, according to data compiled by Bloomberg. The company also has a $300 million revolving line of credit that comes due in July 2016, the data show.

Pep Boys’ board has approved the deal, according to the statement. The agreement contains a 45-day “go shop” period that allows the company to receive other offers.

Bank of America Corp. provided financial advice to Pep Boys, as well as a fairness opinion to the board. Morgan, Lewis & Bockius LLP gave legal counsel to the retailer. Gores Group received financial advice from Credit Suisse, Barclays and Sagent Advisors, while Skadden, Arps, Slate, Meagher & Flom LLP served as legal adviser.



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