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Gores Group, a Los Angeles-based private-equity firm, cancelled its plans to buy Pep Boys after the retailer posted lower than expected first quarter results. Pep Boys also declined a Gores Group request to delay a May 30 shareholder vote on the acquisition in order to review Pep Boys’ financials for potential “material adverse effect” that could void the deal.
In January, Gores Group said it would acquire Pep Boys for $15 per share. The deal was set to close by mid-2012, but the equity firm expressed concerns after Pep Boys’ first quarter financials were released on May 1.
The deal had been set at around $1 billion, but was later restated at $804 million.
Gores Group will pay Pep Boys some $50 million in a so-called “breakup fee” and will reimburse the retailer for some merger-related expenses as settlement “for any and all potential claims that Pep Boys could assert under the terms of the merger agreement,” Pep Boys said in a statement.
According to the WSJ, “The deal’s demise came after Gores Group, run by founder Alec Gores, had been spooked by falling results at the self-service auto shop and sought a delay on the deal, according to a securities filing. But Pep Boys was unwilling to renegotiate, according to people familiar with the matter and securities filings on the deal.”
Gores Group, the newspaper reported, also took a dimmer view after financial results from AutoZone and Advance Auto Parts “included hints of slowdowns this year.” Apparently Gores Group had raised concerns about Pep Boys performance last fall.
Pep Boys CEO Mike Odell said that the company’s “financial position is solid,” and plans call for Pep Boys to use available cash and the Gores settlement to pay down loans and refinance senior subordinated notes in 2013, Odell said.
At the same time, reports indicate that Pep Boys have held talks with at least three other “interested buyers, including one ‘strategic’ or corporate buyer, as late as January,” the WSJ reported, but apparently nothing came of those discussions.
