Icahn Stake Puts a Charge Into Pep Boys

On Friday, after activist investor Carl Icahn revealed a 12.1% stake in Pep Boys – Manny, Moe & Jack (NYSE: PBY), the stock bounced big in after-hours trading, but cooler heads appear to have prevailed Monday morning and the stock opened about 2% higher than its Friday close.

While an Icahn investment can often drive a big jump in a stock’s price, it’s tougher in this case because Pep Boys already has agreed to be acquired by Japan-based tire maker Bridgestone for around $835 million in cash. About all Icahn can do is try to wring a few more bucks out of Bridgestone. Or he could kill the deal altogether.

In a press release Monday morning, Pep Boys noted that Icahn said in his Friday Schedule 13D filing that he had “engaged in prior discussions with the Company regarding Icahn’s interest in Pep Boys and, in particular, its retail business.” Then Pep Boys referred to a filing of its own in October:

The Schedule 14D-9 discloses that such discussions took place over six months and did not result in Icahn’s presentation to the Company of a transaction with a value superior to Bridgestone’s $15.00 per share offer. Notably, on October 22, 2015, Icahn declined to increase its previously delivered $13.50 per share proposal for the Company and, since that date, Icahn has not presented the Company with any subsequent proposal.

Icahn’s filing last week also included a Hart-Scott-Rodino antitrust filing that Pep Boys said “reserved [Icahn’s] right to propose a variety of other transactions involving Pep Boys in order to achieve its stated interest in acquiring Pep Boys’ retail business.”

Here’s Pep Boys’ conclusion:

These notices have raised concerns that Icahn may be taking these actions to obtain negotiating leverage in its discussions with third parties regarding Icahn’s potential purchase of Pep Boys’ retail business and, as a result, Pep Boys shareholders’ ability to realize the value presented by the Bridgestone offer may be frustrated.

So, instead of driving up the share price (Pep Boys stock rose about 9% in the Friday after-hours session), Icahn’s announcement has moved it up about 2%. Shares traded at $16.03 in the first hour of Monday’s session, up about 2.2% from Friday’s closing price of $15.69. The stock’s 52-week range is $8.00 to $16.50.

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