Shares of Advanced Auto Parts (NYSE:AAP) jumped nearly 9% after rumors surfaced that it was the possible target of a takeover attempt. Following on the heels of the ongoing bidding war for Pep Boys (UNKNOWN:PBY.DL) between Japanese tiremaker Bridgestone and activist investor Carl Icahn, there is speculation that this end of the auto parts market may be ripe for consolidation.
Does it matter?
Like Pep Boys, Advance Auto Parts focuses more heavily on the do-it-for-me segment of the market, or DIFM, as opposed to the do-it-yourself (DIY) customers. Rivals AutoZone and O'Reilly Auto Parts (NASDAQ:ORLY) are the opposite, concentrating more on the DIYers.
It's notable that AutoZone and O'Reilly have been stronger performers, which have made the valuations of Advance and Pep Boys more attractive. The former has been under pressure from hedge fund Starboard Value to make changes to its operational performance, as it believes Advance Auto Parts stock could be worth double its price, or $400, if it could get margins to match those at O'Reilly.
O'Reilly is rumored to be one of the possible suitors, as is Icahn, which would mean he has given up on his Pep Boys takeover. As Icahn is not known as someone who gives up easily, that seems hard to believe, but it's possible that with Bridgestone having matched his offers, Pep Boys management urging shareholders to accept their bid, and his reluctance to raise his offer in the first place, he may view Advance Auto Parts as an easier target with similar prospects for growth.
Advance Auto Parts says it doesn't comment on speculation but considering the pressure Starboard Value has been putting on the company, investors should watch for further developments both here and at Pep Boys.