CHICAGO — LKQ Corp. has signed a definitive merger agreement to acquire Keystone Automotive Industries, a provider of aftermarket vehicle collision replacement parts, for $48 per share in cash. The merger, which is subject to approval of the shareholders of Keystone and other customary conditions, is currently expected to close early in the fourth quarter of 2007.
Keystone’s board of directors has unanimously recommended that Keystone shareholders approve the merger. Total cash consideration is approximately $811 million on a fully diluted basis.
According to LKQ, the acquisition will create a comprehensive vehicle alternative replacement parts business with combined revenue of approximately $1.5 billion.
"We have consistently executed strategies to grow LKQ and create stockholder value," said Joe Holsten, president and chief executive officer of LKQ. "LKQ and Keystone are a great strategic fit and this acquisition is a natural progression of our strategy to expand our presence in the distribution of automotive replacement parts, an industry that we estimate to be over $188 billion in size."
To complement its recycled OEM parts business, LKQ acquired Global Trade Alliance, an aftermarket parts distributor, in 2004. Since that time, LKQ has successfully integrated a
number of smaller aftermarket and refurbished parts distributors to better serve its direct repair shop customers, insurance carriers and extended warranty providers.
Now, says Holsten, the acquisition of Keystone will accelerate the execution of the company’s strategy to achieve balance between the recycled and aftermarket parts businesses.
"This transaction should have significant benefits for our customers as it immediately gives us an expanded national footprint of more than 260 distribution centers and expands our ability to provide customers with a broadened offering of readily available, high-quality recycled, refurbished and aftermarket collision repair parts along with our well known customer service. We believe the merger will allow for better availability and higher utilization of alternative parts in the repair process, which will benefit our insurance company customers and grow our business."
"Keystone has a strong distribution network and customer base with substantial brand equity," Holsten added. "They have achieved substantial and profitable growth as an independent company. This transaction affords LKQ and Keystone the opportunity to create an even stronger organization, deliver compelling value to our customers and provide for enhanced career opportunities for LKQ and Keystone employees. Keystone’s aftermarket product line is a perfect complement to LKQ’s leading presence in the recycled parts marketplace. We look forward to joining forces with Keystone to offer our customers a comprehensive national alternative parts inventory and improved fulfillment levels through our expanded network."
For the 12 months ended March 31, Keystone reported sales and net income of $714 million and $30 million, respectively, and LKQ reported sales and net income of $833 million and $48 million, respectively.
LKQ expects the transaction to be accretive to its earnings in 2008 after giving effect to the transaction expenses, interest costs and non-cash charges related to the amortization of intangible assets resulting from the transaction, but before giving effect to certain one-time restructuring costs required to integrate the businesses. The company expects to realize significant synergies mainly from the benefits of distribution efficiencies, working capital management, cross-selling opportunities, lower overhead, and increased productivity.
LKQ has received a $1.090 billion senior secured financing commitment from Deutsche Bank and Lehman Brothers Inc., subject to customary conditions, to support the transaction and to refinance existing debt. Leverage ratios are expected to decline significantly over the next three years as cash flow is generated and anticipated operating synergies are realized.
The transaction is expected to be completed early in the fourth quarter of 2007 and is subject to customary closing conditions, necessary regulatory approvals and an affirmative vote by Keystone’s shareholders.
Robert W. Baird & Co. is acting as the sole financial advisor to LKQ in this transaction. Bell, Boyd & Lloyd LLP is acting as legal counsel to LKQ.
For more information, go to: http://www.lkqcorp.com.
