Dive Brief:

• American auto-parts chain Pep Boys has terminated its acquisition agreement with Kurume, Japan-based Bridgestone Corp. in favor of a bid from activist investor Carl Icahn, an all-cash transaction for $18.50 per share, or approximately $1.031 billion in aggregate equity value. The merger agreement has been unanimously approved by the boards of directors of both companies, according to the companies’ press release.

• Bridgestone Retail Operations, the U.S. subsidiary of the Japanese company, had agreed in October to buy the Pep Boys auto-parts chain for about $835 million, then raised its takeover bid to $15.50 or $863 million this month to match Icahn’s first offer. 

• Bridgestone Corp.’s subsidiary owns more than 2,200 tire and automotive centers and has more than 5,000 dealers and distributors in the U.S. and a merger with Pep Boys would have created the largest auto service and supplies retailer in the world. But Pep Boys CEO Scott Sider in a statement noted that the deal with Icahn “delivers outstanding value to Pep Boys' shareholders.” Indeed, the bidding war has driven up the price of Pep Boys stock, which has risen some 93% year-to-date through Tuesday's trading close.

Dive Insight:

Depending on the circumstances, major plays by activist investors like Carl Icahn—and he’s an especially prolific one in the U.S.—can be good or bad for the companies they have in their sights. 

Sometimes, the end goal is a short-term boost in stock price that has the activists getting in and out with huge profits.

But other times, these investors are on to something: That there are issues at a company that should be addressed by management, like inflated executive compensation or a lagging e-commerce strategy. Indeed, a recent study by Duke University’s Fuqua School of Business found that on average, companies’ performance improves after activists make and get their demands. 

"We are very pleased to have reached this agreement, which delivers outstanding value to Pep Boys' shareholders, provides new opportunities for Pep Boys employees and allows Pep Boys to benefit from the significant expertise and resources of Icahn Enterprises," Sider said in a statement. "There are tremendous opportunities for Pep Boys and Auto Plus, a company that shares Pep Boys' unwavering commitment to best-in-class customer service and solutions.  I am confident in Pep Boys' strong future growth prospects as an Icahn Enterprises portfolio company."

In this case, Icahn would have won this battle one way or another; even if Bridgestone had prevailed, he could have pocketed the share increase. Instead, he’s likely to make substantial changes to the business, in conjunction with his plans for rival auto-parts chain, Auto Plus, which has 270 locations in the U.S. and which his company acquired in June.

Pep Boys is one of the oldest auto-parts chains in the U.S., having launched in 1921 in the age of the Model T. The business in general is doing well these days as there are more older cars on the road, a lingering side effect of the recent U.S. recession. Plus, more sophisticated, computer-based auto machinery has helped blunt e-commerce’s incursion into the space, with amateur mechanics less able to work on their own cars.

But Pep Boys itself was in need of a boost, and Icahn clearly saw value in the company beyond its share price or Bridgestone’s acquisition offer. He says his company will be linking the Philadelphia-based auto-parts chain with Auto Plus. That would likely mean major changes at Pep Boys, which could also mean streamlining and job losses.

"This was a terrific opportunity to leverage the financial resources and industry knowledge of Icahn Enterprises to the benefit of Pep Boys' customers, manufacturer partners, and employees, and further bolster our U.S. automotive footprint," Icahn said in a statement.  "Since our acquisition of Auto Plus, our wholly-owned automotive aftermarket company, in June, we have been actively looking for an excellent synergistic acquisition opportunity like Pep Boys, which has enormous growth potential, strong brand recognition, and well-known, best-in-class customer service."