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December 27, 2015

Price of Pep Boys deal raised yet again, to $947M

In bidding war with investor Carl Icahn, Bridgestone offers $17 per share

Isn't it annoying when you find the perfect gift right before the holidays, but then another bidder jacks up the price?

Bridgestone knows that feeling very well. The Japanese tire-maker planned to buy Philadelphia-based Pep Boys for $835 million, but it's going to end up paying $947 million instead because investor Carl Icahn tried to scoop out Pep Boys for himself. And the news came out on Christmas Eve, just to add insult to injury.

Bridgestone and Pep Boys announced their merger in October, with Bridgestone buying out Manny, Moe and Jack for $15 a share. Then, in early December, Icahn stepped in with an offer of $15.50 per share. (He controls another car service chain, Auto Plus, so acquiring Pep Boys could help him turn a competitor into an asset.)

Bridgestone agreed to match Icahn's offer, raising the deal's total price by $28 million. Icahn took the bidding war up a notch by offering $16.50 per share this time.

So on Thursday, Bridgestone had to raise its own offer to $17 per share, or $947 million total.

But is this the end? Icahn said that he was willing to pay over a billion dollars for Pep Boys. He even put a "ratchet" mechanism into play that would automatically raise his bid 10 cents a share above whatever Bridgestone's offer is, up to $18.10, reported the Wall Street Journal.

"Leave it to Mr. Icahn to upend decades of deal dynamics with a single bid," wrote Ronald Barusch for the Journal.

However, Icahn said that he would rescind his offer if Bridgestone increased its fee to Pep Boys for breaking the agreement. The breakup fee did indeed go up, from $35 million to $39.5 million, wrote the Journal. It's not clear, therefore, what Icahn will do next, or what the increase buy-out price means for Pep Boys employees.