UPDATE: Icahn boosts Pep Boys with $18.50/share offer

UPDATE: Investor Carl Icahn has made a new offer, to buy Philadelphia-based Pep Boys for $18.50/share, boosting the chain's value over $1 billion.

EARLIER: Bridgestone, the Japan-based tire company that operates 2,200 U.S. tire and auto service garages, has until Jan. 12 to pay $17 a share (or around $950 million total) to shareholders of Philadelphia-based Pep Boys - Manny Moe and Jack.

The deal would give Bridgestone, which operates Firestone tire stores and other chains, Pep Boys' tire, fleet-service and warehouse businesses, plus its 801 stores, including 567 store-and-garage "Supercenters" and more than 200 other garages it owns, some under other brands.

A sale to Bridgestone will likely be followed by the consolidation of headquarters functions at Pep Boys' Allegheny Ave. offices, which employ 500, to Nashville or other Bridgestone sites.

In trading Monday morning, the first since Pep Boys board announced last week it had switched its preference back to Bridgestone over rival bidder Carl Icahn, shares changed hands at around $17.40, as if some investors expect Icahn (who owns the Auto Plus parts chain, among other companies) or another bidder might still make a better offer.  Indeed, Bridgestone's offer appears lower than the maximum $18.10 a share Icahn agreed to pay last week. (Updated)

But the Bridgestone agreement would also force Pep Boys to pay Bridgestone $39.5 million if the Philadelphia company drops it for a better bid. That gives Pep Boys directors an incentive to stick with Bridgestone unless a new offer comes in significantly higher. Icahn's bid expired Christmas Eve, and in a Pep Boys statement the company said discussions with Icahn about its former offer have ended.

As a Pennsylvania company, Pep Boys has more leeway than companies that operate under New York, Delaware or other state corporation laws in choosing an offer for reasons other than share price, though it has not cited this during the Icahn-Bridgestone bidding war. Bridgestone had to increase its offer from an earlier $15.50 a share to compete with Icahn.

In a statement, Stu Crum, president of Nashville, Tenn.-based Bridgestone Retail Operations, said Pep Boys and Bridgestone's brands, over the past 100 years, "created what has become today's automotive aftermarket retail model" and also "share a common vision... (to be) the most trusted provider of automotive service in every neighborhood it serves."

Besides Firestone, Bridgestone operates stores under the Hibdon and Wheel Works brands; its tires are also sold by thousands of other dealers. Pep Boys' 801 locations include 567 Supercenter store/garage combinations, as well as 234 service and tire garages, operating in parts of the country under the Discount Tire, Big 10 and Florida Tire brands.

Bridgestone could end up selling Pep Boys' retail storefronts to O'Reilly Auto Parts or another national chain, analyst Ali Faghri told clients at Stern Agee & Co. in a report last week. Icahn, who is one of Pep Boys' largest shareholders, is another potential buyer if Bridgestone splits off the stores, which accounts for about 20 percent of Pep Boys' total annual sales of $2 billion. Bridgestone's Firestone business is more compatible with Pep Boys' garages, tire and fleet-service business.

Pep Boys sales are lower than they were in 2006 and profitability has declined in recent years. The company says it had $62 million in cash at mid-2015, owed $195 million in debt effectively maturing in 2018, and pays $12 million interest on that debt annually. Pep Boys owes 229 store locations, appraised at $714 million last year; the net book value was a little more than half that much, and the tax value $290 million.