Advance Auto Parts (AAP) has agreed to sell its Worldpac subsidiary to Carlyle Group (CG) for $1.5 billion in cash, marking a significant step in its strategic efforts to streamline operations. The transaction, expected to close by the end of the year, will generate approximately $1.2 billion in proceeds after taxes and transaction fees. This sale is part of Advance Auto Parts' broader plan to simplify its business and enhance profitability. CEO Shane O’Kelly emphasized that the sale would allow the company to concentrate on its core retail operations, referred to as the "Advance blended box business," and provide greater financial flexibility as the company continues its strategic review.
Worldpac, a wholesale automotive parts distribution business, generated about $2.1 billion in revenue and $100 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the 12 months leading up to the close of the second quarter. Carlyle Group praised Worldpac as a strong business operating in attractive markets. The decision to sell Worldpac comes after pressure from activist investors and aligns with O'Kelly's turnaround strategy, which he initiated last year. The deal also reflects the challenging macroeconomic environment that has prompted retailers like Advance Auto Parts to lower expectations and adjust their business strategies.
Market Overview:- Advance Auto Parts to sell Worldpac to Carlyle Group for $1.5 billion.
- The sale is part of a broader strategy to streamline operations and focus on core business.
- Worldpac generated $2.1 billion in revenue over the past year.
- Advance Auto Parts cuts 2024 sales and profit forecasts following the sale.
- The company faces increased costs and competitive pressure from rivals AutoZone (AZO) and O'Reilly Automotive. (ORLY)
- The sale provides financial flexibility but highlights ongoing challenges in the retail environment.
- The transaction is expected to close by the end of the year, providing Advance Auto Parts with $1.2 billion after taxes and fees.
- Advance Auto Parts will focus on its core retail operations amid a tough retail landscape.
- Despite the sale, the company must address financial headwinds and regain competitive footing.
Following the announcement, Advance Auto Parts cut its annual sales and profit forecasts, leading to a significant drop in its stock price by about 17%.
As Advance Auto Parts continues to navigate a tough retail landscape, the sale of Worldpac to Carlyle Group represents a crucial move in its ongoing restructuring efforts.
