Advance Auto Parts To Acquire Discount Auto Parts, Inc.

    ROANOKE, Va. & LAKELAND, Fla.--Aug. 7, 2001-- Advance Auto Parts and Discount Auto Parts, Inc. announced today that they have signed a definitive agreement for Advance to acquire Discount in a merger transaction. As a result of the merger, Discount shareholders will own approximately 13% (approximately 4.3 million shares) of the total shares outstanding of the combined company. Discount shareholders will receive $7.50 in cash plus 0.2577 shares of common stock of the combined company for each Discount share. Advance Holding Corporation will file a registration statement with the SEC covering the shares to be issued in the transaction and will become a public company and renamed Advance Auto Parts, Inc. Larry Castellani will remain as Chief Executive Officer of Advance. Peter Fontaine, Chairman and Chief Executive Officer of Discount, will become a member of the Board of Directors of Advance.
    Advance and Discount combined today operate 2,420 stores in 38 states. On a pro forma trailing twelve month basis, the combined companies generated over $3.0 billion in revenues and approximately $243 million in EBITDA. Management believes that significant benefits will be obtained through purchasing and distribution efficiencies and other expense savings. Such efficiencies could total $30 million on an annual basis. At closing, total debt (net of cash) is estimated to be approximately $950 million and total diluted Advance shares outstanding will be 33.8 million.
    "Discount Auto Parts provides Advance with a solid position in the Southeast, a leading presence in the important state of Florida, and an emerging, sound commercial delivery operation," said Larry Castellani, CEO of Advance. "With Discount's strong team and a customer service orientation similar to our own, we believe the combined company will be an even stronger competitor in our industry."
    "We liked the fit with Advance from the start," said Peter Fontaine, Discount Auto Parts Chairman. "Advance offered us an opportunity to merge with a company that was very similar to ours, from its roots in family ownership and its culture, to its store format and customer demographic. We believe the merger is a great fit and a solid win for us all: our shareholders, our team and our customers."
    Based on the above referenced pro forma financial information including expected efficiencies, the stock component of the transaction will have an implied value of $7.50 - $9.50 per existing Discount share when applying a latest twelve months EBITDA multiple of 7x-8x. This multiple range is at the low end of the current multiple range for comparable auto parts retailers, including AutoZone, Genuine Parts, O'Reilly Automotive and Pep Boys. When the $7.50 per share cash component is included, the total implied value of the transaction will be an estimated range of $15.00 - $17.00 per existing Discount share. No assurances can be given regarding the price of Advance's stock following the close of the transaction.
    As part of the transaction, holders of outstanding options to purchase common stock of Discount will receive, in exchange for their Discount options, either cash payments (for those options with an exercise price under $15.00 per share) or options to purchase the common stock of Advance Auto Parts, Inc. (for those options with an exercise price at $15.00 or more).
    Fontaine Industries Limited Partnership, a partnership controlled by Peter Fontaine, is Discount's largest shareholder and has entered into a voting agreement requiring Fontaine Industries to vote its shares in favor of the transaction and has granted an irrevocable proxy to Advance Stores Company to vote such shares. In addition, Fontaine Industries has entered into a stock option agreement granting an option to Advance Stores Company to purchase the shares held by Fontaine Industries under certain circumstances. Fontaine Industries owns approximately 25% of the outstanding common stock of Discount.
    In connection with the merger agreement, Discount's Board of Directors approved an amendment to its Stockholder Rights Agreement to make the provisions of the Stockholder Rights Agreement inapplicable to the transactions contemplated by the merger agreement.
    The transaction is subject to approval by the shareholders of Discount, clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary closing conditions, and is expected to close in the fourth calendar quarter of 2001.