In his latest shot to break up a deal, Carl Icahn says he has a better plan for Pep Boys and Manny, Moe, and Jack.
Icahn offered on Monday to buy the auto parts retailer for $15.50 a share. Pep Boys (PBY) had already agreed in October to be bought by tire maker Bridgestone for $835 million, or $15.00 a share. Monday’s move comes just days after Icahn announced he’s got a 12% stake in Pep Boys. He wants to combine the retailer with Auto Plus, which is owned by his holding company, Icahn Enterprises.
Icahn Enterprises already has a large auto segment, of which Auto Plus is a part, that generated $2 billion in the third quarter alone. Pep Boy had $2 billion in revenue for all of last year. The company has effectively been on the block for years. In 2012, a $1 billion buyout of Pep Boys by private equity firm Gores fell apart, after it was soured by Pep Boys results.
Pep Boys operations have been rebounding this year. In the first half, which ended in August, the company earned $16 million a share, or $0.31, up from a little over $1 million in the same time the year before.
In a prepared statement, Pep Boys dismissed Icahn’s bid, saying he was just trying to drive up the price Bridgestone would be willing to pay for it, allowing him to pocket a quick profit. Two years ago, Icahn entered the bidding for Dell, when he thought the computer maker was being taken over for a bargain. Icahn could also be trying to increase the price of Pep Boys in order to make his stake in Auto Parts look more valuable.
But the fact that Icahn is only offering 3% more than the Bridgestone bid suggests he actually wants to acquire Pep Boys. It also suggests that the price that Bridgestone is offering isn’t that much of a bargain. Based on its current earnings, Bridgestone’s bid values the company at around 25 times earnings. That’s a lot for a troubled retailer. But auto parts and repair is one of the few areas of retailing that has a bit of protection from e-tailers.
Like other activist investors, Icahn has struggled this year, mostly because of his bets on oil. Shares of Icahn Enterprises (IEP) are down 26% this year. Either way, the market seems to think he will be successful in driving up the price of Pep Boys. Shares of the company rose to just over $16 on the news of his bid.