by Lou Whiteman | Published May 30, 2012 at 10:52 AM
A planned $1 billion buyout of Pep Boys-Manny, Moe & Jack by Gores Group LLC was called off late Tuesday, May 29, amid lingering questions about the recent financial performance of auto parts retailer.
Philadelphia-based Pep Boys in a statement said that the two sides had agreed to a settlement for "any and all potential claims" it could assert under the terms of the merger agreement, with Gores agreeing to pay $50 million to reimburse Pep Boys for merger-related expenses.
Pep Boys also cancelled a special shareholder meeting, scheduled for Wednesday, where investors would have voted on the planned transaction.
Los Angeles-based Gores on Jan. 30 announced plans to buy Pep Boys for $15 per share in cash for a total consideration of $790 million for the equity and about $210 million in assumed debt. Gores according to reports bested a number of other private equity bidders to win the Bank of America Merrill Lynch-run auction.
But doubts about the deal began to surface after Pep Boys on May 1 reported preliminary first quarter results that came in below analyst estimates. The company said that for the three months ending April 28 it expected a profit of $12.4 million, or 23 cents per share, on sales of $513.5 million, compared to analyst expectations of a 26 cent per share profit on $557.4 million in revenue.
In an amended proxy statement released May 1, Pep Boys said that Gores had asked the company to hold the filing for 30 days so the private equity firm could analyze the quarterly results. Pep Boys instead offered to extend the period from when deal conditions have been met to the close from five to 14 business days, but Gores rejected that offer.
Shares of Pep Boys, which operates 700 locations in 35 states and Puerto Rico, traded down more than 21%, or $2.40, to $8.69 at open. But company CEO Mike Odell in a statement announcing the termination of the deal said the company is in good shape.
"The mild winter weather, restrained customer spending, delays in implementing new technology and disruption during store conversions have impacted recent results," Odell said, adding "our financial position is solid."