Pep Boys Sale Illustrates Consolidation in the Auto Industry

Steve Kanaval  |

Manny, Joe and Jack are real guys, and they sell auto parts. Today, Bridgestone Corp ($BRDCY) confirmed that it will buy all outstanding shares of Pep Boys for $15 a share in cash under the terms of the acquisition. The price represents a 23% increase over Pep Boys' Friday closing price. 

"We are excited to join the Bridgestone family of companies to become part of the world's largest company-owned tire and automotive service retail network," Pep Boys CEO Scott Sider said in a statement. "This transaction delivers a significant premium for Pep Boys' shareholders and offers new opportunities for our employees across a bigger business."

When I looked at the changes in the auto industry, I expected declines in marginal players. I did not expect consolidation like we are seeing here across the board. This makes sense when you look at it from Bridgestone's perspective – they get more outlets, they can integrate the current staff, and upsell out parts utilizing the Pep Boys brand. I expect more consolidation as we move to a world of Uber computerized pick up, drop off and transportation shift.

Bridgestone Rolls to the Plus Side for 2015

Today's move puts PBY up 55% for the year. Few people know that they were trading around $8.00 per share in Q1, when they reached out to Wall Street to find a buyer – and find a buyer they did, in Bridgestone. These investment bankers did a good job at articulating the potential synergies and upcoming industry roll up. Bridgestone was also seeing pressure in its share price through most of 2015.  This potentially accretive acquisition has bumped shares in Bridgestone back to the plus side for the year, and will put auto industry roll ups in high gear as we head out of 2015.

Many industry analysts expected the auto part subsector to continue its downward move, and those who follow tire makers know how commoditized the business has become. This will create some opportunity for the industry to rebrand itself in terms of products and services. All shares of Pep Boys will be absorbed into Bridgestone – I imagine them keeping part of the Manny, Joe and Jack logo for a while, as this made retail buyers feel at home buying unusual auto parts over the years.

"Our shared expertise and commitment to our customers and employees will help us build an even stronger organization," said Gary Garfield, CEO and President of Bridgestone America in a statement. It looks like this consolidation will take the voice of Manny, Joe and Jack, and consolidate it into one.


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