The Stories That Shaped 2008, No. 4: O'Reilly Auto, CSK agree to $1B deal

O'Reilly Automotive Inc. enacted the largest acquisition in the publicly traded Springfield company's 51-year history, solidifying its role in 2008 as the nation's No. 3 auto parts retailer.

The net value was $1 billion in cash and stock for its purchase of Phoenix-based CSK Auto Corp., which formerly traded on the New York Stock Exchange under the ticker symbol "CAO." O'Reilly (Nasdaq: ORLY) bought CSK's roughly 44 million outstanding shares for $528 million and assumed about $500 million in CSK debt.

The deal closed July 11 but took 16 months to reach, with the final price tag a little more than O'Reilly originally bargained for.

O'Reilly officials had been eyeing the Western competitor for some time, and in March 2007, attempted to orchestrate a buyout with CSK executives. When they wouldn't bite, O'Reilly CEO Greg Henslee sent a hostile bid direct to CSK's shareholders in February.

CSK attempted to block the takeover by enacting a "poison pill," which prevents a company from acquiring more than 10 percent of the sought-after stock. Ultimately, O'Reilly was forced to up the ante to $1 billion in cash, stock and debt assumption.

O'Reilly officials said they were attracted to CSK because the company blanketed the Western United States - relatively untouched by O'Reilly - and CSK's stock had plummeted and senior-level reorganizations were ongoing. It was an opportune time for O'Reilly to make a move. Additionally, both retailers operated dual-market strategies: the do-it-yourself consumer and professional installer.

"Our two companies maintain highly complementary business models in two distinctive regions of the country," Henslee said during an April investor conference call. "We will be well positioned to expand our geographical reach."

The strategic move also allowed O'Reilly to jockey for position in the retail auto parts industry - one of the few segments faring well in a rocky economy. Analysts chalk it up to more consumers fixing their cars rather than buying new cars.

With CSK's 1,350 stores in 22 states, O'Reilly inched closer to No. 2 auto parts retailer Advance Auto Parts Inc.; at the time of the deal, O'Reilly was within 50 stores of Virginia-based Advance's 3,220 retail sites. Memphis, Tenn.-based AutoZone Inc. is the country's largest auto parts retailer with about 4,000 stores.

The acquisition was viewed favorably by Wall Street, but profits aren't expected to be realized until 2009. In fact, 2008 earnings targets set in July were downgraded in October to between $1.45 and $1.49 per share, due to acquisition-related charges.

O'Reilly has said that it hopes to reduce operating costs of the combined company by about $100 million beginning in 2010.

Despite a roller-coaster year for stocks, O'Reilly shares held steady, floating between $21 and $32.50, with an apparent finish slightly under its 52-week high of $32.71 a share. Its stock outperformed the S&P 500 much of the year.

In May, O'Reilly climbed 24 spots to No. 767 in the Fortune 1,000. The year concluded with O'Reilly nabbing a spot on the Nasdaq 100 Index, the exchange's 100 largest nonfinancial stocks.[[In-content Ad]]