Pep Boys Shares Spike on Buyout Talk
Monday November 21, 6:14 pm ET
Pep Boys Shares Spike As Investment Firm Calls for CEO Ouster
NEW YORK (AP) -- Shares of Pep Boys bounded higher Monday as investors cheered on calls by a New York-based investment firm that the struggling auto parts giant shake up its management in a bid to increase the company's value.
Barington Cos. Equity Partners LP. announced in a report to the Securities and Exchange Commission it has snapped up a 1.32 percent stake in the Philadelphia-based company. The firm -- led by corporate raider James Mitarotonda -- is leading a group of investors who combined hold 5.85 percent of the company's stock.
The investor group wants to oust Pep Boys Chairman and Chief Executive Lawrence Stevenson and appoint an independent chairman. In addition, Barington wants to meet with Pep Boys' directors about "strategic alternatives" for the retailer's foundering automotive service center business and ways to reduce debt.
Speculation about a possible sale of the company helped lift shares by $1.40, or 10.1 percent, to close at $14.50 on the New York Stock Exchange. Shares were up another 4 cents in aftermarket activity.
Before the boost, shares of the company -- officially known as Pep Boys -- Manny, Moe & Jack -- tumbled 24 percent since hitting a 52-week high in March.
Pep Boys has struggled to compete in a market crowded by big national rivals such as Advance Auto Parts Inc., CSK Auto Corp., AutoZone Inc. and O'Reilly Automotive Inc. To boost sales, Pep Boys has taken steps to refurbish retail stores.
There has also been concern about Pep Boys' automotive service business, which is seen by analysts as a constant drag on quarterly earnings. Declining margins in the service business was one reason the company moved to a third-quarter loss from a year-ago profit, as sales declined 2 percent.
Stevenson said in a statement last week "the disruption caused by our recent field restructuring is not yet behind us and the spike in energy prices has disproportionately affected our lower income customer base." He said the store refurbishments could show improvements in merchandise margins during the fourth quarter.
A spokesman for Pep Boys did not return telephone calls. The company did issue a statement late Monday from Chief Financial Officer Harry Yanowitz saying management "agree with the investor group's statement that our stock is undervalued."
"We always welcome investors' views on our business strategy, as the board of directors and management strive to optimize long-term value for all our shareholders," Yanowitz said.
Barington said in the SEC filing it might push its own slate of board members, or increase its Pep Boys holdings, to instigate change at the company. Mitarotonda, who has served on other companies' boards in which he's owned large stakes, could not be reached for comment.
Since forming Barington in 1991, Mitarotonda has carved out a name for himself as being an activist shareholder -- unseating management at Internet music companies Musicmaker.com and Liquid Audio.
Most recently, he staged a proxy fight for control of Internet domain registration company Register.com Inc. That deal was stopped short after the New York-based tech company agreed to go private in a buyout from Vector Capital -- which is still up for shareholder approval.
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