O'Reilly stock faces regulatory risks in potential Napa bid, says Barclays

Investing.com - O'Reilly Automotive (NASDAQ: ORLY) could face regulatory scrutiny and divestiture requirements if it acquires Genuine Parts' auto business, according to a Barclays analysis released following a Bloomberg report Thursday that O'Reilly made a cash bid for the segment. The potential deal, valued at more than $10 billion according to the Bloomberg article, would have major implications for O'Reilly and competitors AutoZone (NYSE: AZO) and Advance Auto Parts (NYSE: AAP).

Barclays estimates more than 2,000 incremental points of presence across the U.S. for O'Reilly through the acquisition, heavily concentrated in the Northeast and Mid-Atlantic where overlap is currently low. The firm notes that approximately 4,000 O'Reilly stores, or 61% of its roughly 6,500 store base, already have a NAPA location within three miles. Less than half of these markets have all of the Big Four auto parts retailers, which Barclays uses as a proxy for the most competitive markets.

The firm estimates 500 to 1,000 locations could face regulatory scrutiny, with approximately 1,800 O'Reilly stores having a NAPA within a one-mile radius. Of those, roughly 600 do not have an AutoZone or Advance Auto Parts nearby and could be divestiture candidates, Barclays says.

The potential deal presents incremental risks for Advance Auto Parts, which has approximately 840 stores, or 20% of its U.S. store base, in markets with NAPA but no O'Reilly today. AutoZone has around 770 stores, or 11% of its U.S. base, in similar markets. Both companies could benefit from any divestitures and disruption from integration, according to Barclays.

NAPA operates roughly 700 stores in Canada with 13 distribution centers, compared to O'Reilly's 23 stores and two distribution centers in the country. O'Reilly management has not confirmed or denied the bid, and the Bloomberg article notes that rival bidders could still emerge.

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