Shares of Pep Boys (NYSE:PBY) plunged over 20% Wednesday morning after the auto parts retailer’s $804 million leveraged buyout with the Gores Group officially collapsed.
Philadelphia-based Pep Boys said late Tuesday the takeover has been terminated, leading to a $50 million breakup fee being paid by the private-equity firm. Pep Boys also said the Gores Group has agreed to “reimburse” the company for “certain merger-related expenses.”
The deal had been in doubt after Pep Boys disclosed projections on May 1 for a plunge in first-quarter earnings caused by slumping business conditions. The Gores Group requested a delay in the takeover process, citing a “serious deterioration” in the company’s business.
“The mild winter weather, restrained customer spending, delays in implementing new technology and disruption during store conversions have impacted recent results,” Pep Boys CEO Mike Odell said in a statement on Wednesday. “Nevertheless, we remain on course with our transformation.”
Ending years of sales efforts, Pep Boys on January 30 unveiled the buyout, which was worth about $1 billion when debt was included. The $15-a-share price represented a 24% premium to the prior day’s closing price.
Pep Boys listed just $58.24 million in cash and equivalents on its balance sheet as of January 28.
But Odell said the company’s “financial position is solid,” and said it will use current cash on hand and the $50 million settlement to pay down a term loan and refinance senior notes next year and in 2014 ahead of their maturities.
Still, Wall Street punished Pep Boys for the disclosure, sending its shares spiraling 21.73% lower to $8.68 ahead of Wednesday’s open. The stock had been flat on the year as of Tuesday’s close.