Even though $470 million market cap Monro Muffler Brake Inc. could have snapped up bankrupt R & S Parts & Services Inc. for what, on the surface, appears to be a song, it will likely pay a fraction of that song now that R & S is bankrupt.

On Aug. 11, Rochester, N.Y.-based Monro publicized it would not exercise its option to buy the 87% of R & S, an automotive aftermarket parts and service chain, it does not own.

South River, N.J.-based R & S, which operates 100 Strauss Discount Auto stores, subsequently filed Chapter 11 this month in Newark, N.J., at the U.S. Bankruptcy Court, District of New Jersey.

Monro acquired its 13% stake in privately held R & S on Nov. 1, loaned R & S $5 million and attained the option to purchase the rest of the company by Sept.30 for an additional $12 million in cash and $1 million of Monro stock.

Rob Gross, Monro chief executive officer, added, "And we would have taken over about $15 million in debt." However, over the last year, he said, "Their business deteriorated, and we thought that that deal we structured in November 2005 was not applicable based on the current operating performance. We tried to negotiate it at a lower price, but we weren't able to negotiate a lower price."

R & S CEO Glenn Langberg did not return a call seeking information about the company's advisors and its bankruptcy process.

Sandra Radice, deputy in charge at the Newark bankruptcy court, said there is a hearing scheduled for Sept. 5 on R & S, which she said is also called 1945 Route 23 Associates Inc. in the case file.

As to Monro's next move, Gross said, "We'll follow the bankruptcy process and see what comes out of that. If there's an opportunity for us to purchase service locations, we will."

When asked to qualify that, he said, "The service base, not the retail."

Included at 69 of the 100 Strauss stores are service bays. R & S generated $170 million in revenue for 2005. Monro operates 700 company owned service stores and 16 franchised outlets. When Mergers & Acquisitions Report pointed out that the November deal, therefore, was likely a good one at the time, Gross said, "We thought it was." Now, he quipped, "I guess the question is, How much are they losing?'"

A restructuring/bankruptcy banker remarked of the situation: "When somebody negotiates to sell 87% of his company in exchange for a $5 million loan, that's desperate."

Auto parts retailing is a sector that is very difficult to be small in, noted the banker, who offered his thoughts as a non-participatory observer and requested anonymity.

"My guess is that Monro wanted to help them survive," the banker commented.

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