AutoZone board OKs additional $500 million of share repurchases, enters agreement with ESL Investments

By Lisa Kerner and Jennifer Lanning Drey

Charlotte, N.C., and Portland, Ore., June 26 - The board of directors of AutoZone, Inc. authorized the repurchase of an additional $500 million of the company's stock, bringing its current unused repurchase authorization to $608 million, according to a company news release.

AutoZone is likely to fund the share repurchases using a combination of available cash and new debt, which could include a bond issuance or borrowings under its bank facility, AutoZone spokesperson Ray Pohlman said Thursday.

The additional authorization brings the cumulative share repurchase authorization approved by the AutoZone board since 1998 to $6.4 billion, according to the release.

AutoZone also announced that it entered into an agreement with ESL Investments, Inc. regarding ESL's continued investment in the company.

ESL currently owns about 36.2% of the Memphis-based automotive parts retailer's outstanding common stock.

As part of the agreement, AutoZone agreed to use its "commercially reasonable efforts" to achieve at least the new adjusted debt-to-EBITDAR ratio of 2.5 times by the end of the second quarter of fiscal 2009, according to the release. The previous debt-to-EBITDAR leverage metric was 2.1 times.

Should ESL's percentage ownership of AutoZone shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted, AutoZone said.

"We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements," AutoZone chairman, president and chief executive officer Bill Rhodes stated in the release.

AutoZone's agreement with ESL also provides for the addition of three directors in the near future, two of whom will be identified by ESL for consideration.

The board of directors will expand to 12 members and will then be reduced to 10 members in conjunction with the 2008 annual meeting in December.

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