The Los Angeles-based private-equity firm agreed to buy Pep Boys for $15 a share, or $793 million. On May 1, Pep Boys disclosed first-quarter sales and net income, which both trailed analysts’ estimates. It also said Gores had asked to delay a shareholder vote set for May 30 to examine the results for a possible "material adverse effect" that could void the deal. Pep Boys declined the request.
Under the merger agreement, Pep Boys would have paid Gores $25 million if it were to accept a better offer, or if the deal did not close before July 27, or if shareholders didn’t approve it.
Some shareholders expressed concern before Tuesday’s announcement that the board of Pep Boys might preemptively adjourn the special meeting. Sophis Investments L.L.C. said it sent a letter, dated May 29, to the Pep Boys board in which it says that adjourning the meeting "diverges from shareholder interests."
Sophis, of Fairfield, Conn., wrote that it viewed the "best possible outcome for shareholders" as Gores’ reneging on its original offer, which Sophis believes undervalues Pep Boys. Shares of Pep Boys (PBY) closed at $11.09 Tuesday, up 2 cents. The shares fell more that 12 percent in after-hours trading.
Mike Odell, Pep Boys president and chief executive officer, said in a statement late Tuesday: "Our financial position is solid. Our current intention is to use our cash on hand and the settlement proceeds to pay down our term loan this year and then to refinance our senior subordinated notes in 2013, both in advance of their respective 2013 and 2014 maturities."
This article contains information from Bloomberg News.