Bloomberg News

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

January 31, 2012

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Jan. 30 (Bloomberg) -- Pep Boys -- Manny, Moe & Jack agreed to go private in an acquisition by Gores Group LLC valued at about $791 million after the auto-parts retailer’s previous attempts to sell itself were unsuccessful.

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.

“These are the salad days for automotive service companies,” as consumers pinched by the economy hang on to cars longer, said Mike Grady, head of retail investment banking at Morgan Keegan Inc. in Charlotte, North Carolina. “These are recession-resistant companies.”

Pep Boys, based in Philadelphia, rose 24 percent to $14.93 at the close in New York, the biggest gain since May 17, 2001. The shares declined 18 percent last year.

Bank Loans

The company said commitments for $875 million in loans had been obtained 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 today in a regulatory filing.

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.

Pep Boys hired Goldman Sachs Group Inc. about six years ago to weigh its options after investor Barington Capital Group LP lobbied for a 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.

--Editors: John Lear, Stephen West

To contact the reporters on this story: James Callan at Jcallan2@bloomberg.net Krista Giovacco in New York at kgiovacco1@bloomberg.net

To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; Faris Khan at fkhan33@bloomberg.net


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