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Pep Boys (PBY) Discloses Gores Group Requested Delay in Mailing Proxy Following Earnings Miss

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May 1, 2012 8:53 AM EDT
In a Form 8-K filing, Pep Boys (NYSE: PBY) just issued the following statement:

On April 26, 2012, Gores requested that Pep Boys delay mailing this proxy statement by 30 days. In response, Pep Boys offered to extend the period of time within which the closing of the Merger is required to occur following Pep Boys’ notice to Parent that all conditions to the Merger have been satisfied from five business days to 15 business days. In turn, Gores rejected this counterproposal and reiterated its request to delay the mailing of the proxy statement by 30 days. In addition, Gores stated its belief that this proxy statement is no longer accurate and required the following language be included:
  • “On April 26, 2012, Parent notified Pep Boys that, based on the serious deterioration in the Pep Boys business, Parent believes the Proxy Statement is no longer accurate and that the meeting should be delayed 30 days to allow Parent to determine the cause and extent of the significant downturn. Among other things, Parent believes that: (i) in light of this downturn, the projections provided to the board are no longer accurate, and (ii) Pep Boys may have experienced a material adverse effect or may have violated covenants contained in the Merger Agreement. If Parent concludes that a material adverse affect or material breach of covenant has occurred and is successful in asserting these positions in a court of law, Parent would be relieved from its obligation to consummate the Merger. Parent has informed us that, notwithstanding our mailing of this proxy statement, it is reserving all of its legal rights, and that Parent intends to continue its review of Pep Boys to determine the root causes of this downturn and to determine its course of action with respect to the Merger.”
Pep Boys believes that its first quarter results were below expectations due to a variety of factors occurring in the ordinary course of business. Details of these results will be disclosed in the Company’s quarterly report on Form 10-Q for the fiscal quarter ended April 28, 2012. Pep Boys further believes that these factors existed, were known or should have been known to Gores prior to the execution of the Merger Agreement and have not resulted in a Company Material Adverse Effect as defined in the Merger Agreement, which specifically excludes from its definition “any failure by the Company to meet any published analyst estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by the Company to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations for any period, in and of itself (it being understood that the facts or occurences giving rise or contributing to such failure that are not otherwise excluded from the definition of a “Company Material Adverse Effect” may be taken into account in determining whether there has been a Company Material Adverse Effect).” Furthermore, as more fully described under “The Merger — Pep Boys Management Forecasts” beginning on page 43, the Pep Boys Management Forecasts provided to the board of directors (i) were prepared in good faith in January 2012, (ii) were inherently subject to significant uncertainties and contingencies, (iii) were delivered without any assurance that the underlying assumptions will prove to be accurate or that the projected results will be realized and (iv) are presented to readers of this document with the express caution that financial forecasts are not fact, have not been updated to reflect any changes since the date that they were prepared, should not be relied upon as being necessarily indicative of future results and should not have any undue reliance placed upon them. In addition, Pep Boys does not believe that any material breach of its covenants under the Merger Agreement has occurred. Accordingly, Pep Boys does not believe that any circumstances have occurred that would relieve Parent of its obligations under the Merger Agreement, including under Section 7.4(a) to “use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the Merger and the other transactions contemplated by this Agreement.

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