Monro Auto Service in Derby, CT.
Source: Google Earth
Company: Monro (MNRO)
Business: Monro, formerly Monro Muffler Brake, is engaged in the provision of automotive undercar repair and tire services in the United States. The company provides a range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems, and steering, drive train, suspension and wheel alignment. It also offers tires and routine maintenance services, which include state inspections. It offers repair and replacement of parts. Its stores provide a range of undercar repair services for brakes, steering, mufflers and exhaust systems, suspension and wheel alignment, as well as tire replacement and service. It also offers scheduled maintenance services in its stores where services are packaged and offered to consumers based upon the year, make, model and mileage of each specific vehicle. Its maintenance services include oil change services, heating and cooling system flush and fill service, fuel system service and a transmission flush and fill service.
Stock Market Value: $458.40 million ($15.27 per share)
Monro shares year to date
Activist: Carl Icahn
Ownership: 14.79%
Average Cost: $19.08
Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a true pioneer of the strategy. He is very passionate about shareholder rights and good corporate governance and will go to extreme lengths to fight incompetent boards and over compensated managers. Icahn has invested across all sectors over his more than six-decade long career and has a long history in the automotive parts and services industry. He has been involved in several mergers and acquisitions in this space, acquiring some of his portfolio companies through Icahn Automotive, the automotive-segment business of his conglomerate, Icahn Enterprises. This includes his acquisition of Pep Boys-Manny Moe and Jack in 2016 and Federal Mogul in 2017.
What’s happening
On Nov. 5, Carl Icahn filed a 13D with the U.S. Securities and Exchange Commission, disclosing a 14.79% position in Monro.
Behind the scenes
Monro is engaged in the provision of automotive undercar repair and tire services in the United States, operating more than 1,100 repair shops and tire dealers in 32 states under multiple regional brands. The company has faced several challenges in recent years. Macro factors like lower consumer demand, higher material and labor costs, and a trend in consumer trade-down to lower margin tire products have applied significant margin and growth pressure. As a result, following a 4.9% decrease in sales for fiscal year 2025 — the second year in a row with a meaningful decline in revenue — the company announced that they are closing approximately 145 underperforming locations.
Most recently, the company’s third-quarter earnings report left a lot of investors disappointed about its strategic transition, with weaker-than-expected revenue and no specific financial guidance for the upcoming fiscal year. Shares fell 16.7% the next day. Lastly, many investors have questioned the company’s dividend payout ratio, which has remained relatively large despite these ongoing struggles.
Putting all this together, it comes as little surprise that shares have underperformed, down 44.73%, 66.73% and 63.25% over the past 1-, 3- and 5-year periods, respectively, prior to Icahn’s announcement.
Perhaps this depressed valuation is what caught the eye of Carl Icahn. He disclosed a 14.79% position in the company (67% of which was acquired since the stock’s Oct. 29 downturn), immediately sending the stock up over 15%.
While there are plenty of cheap stocks, this isn’t Icahn taking a flyer on the automotive industry. Icahn has a rich history in the automotive parts and services industry, most notably Icahn Automotive, the automotive segment of his conglomerate, Icahn Enterprises. Icahn knows this industry well and likely sees Monro as a great business that is significantly undervalued.
The timing of this public engagement is also very notable. It is not just the stock’s recent fall that makes this a good entry point for an investor like Icahn. Monro recently agreed to collapse its dual class share structure, which had previously granted its sole Class C shareholder, Peter Solomon, veto power over any matter brought to a shareholder vote, effectively making this a controlled company. Pursuant to its approval in 2023, this collapse will occur prior to the 2026 annual meeting, which is expected to take place next August.
So, what does this mean for the company’s shareholders? It effectively sets the stage for the company being converted from a privately run company to a publicly run company for the benefit of its shareholders. With one person having veto power over all material board decisions, the rest of the board becomes somewhat irrelevant. With this conversion, the company has an opportunity to have a real, collaborative, and productive board. This would require its reconstitution, and we know of nobody better or more experienced than Icahn for that endeavor.
Solomon is an 87-year-old renowned investment banker and Icahn is, well, Icahn and a contemporary of Solomon. However, there is no evidence that the two have ever crossed paths.
Despite this, we would imagine that they have many relationships in common and mutual respect for each other. While there are many different ways this campaign can go down, what we would like to see is the two elder statesmen meeting in a room with an air of civility and cordiality uncommon in the average activist engagement and together coming up with a board that will oversee management, hold them accountable on behalf of shareholders and usher the company through its first real phase as a truly public company. With Solomon already agreeing to give up control, and neither Solomon nor Icahn likely to be on the continuing board, there is no reason why this should get contentious.
However, we also must address the elephant in the room. Icahn has built his automotive industry on acquisitions, and Monro appears to fit in very nicely in IEP’s automotive business.
Icahn has launched activist campaigns at some of the auto companies that he later went on to acquire, including Pep Boys-Manny Moe and Jack in 2016 and Federal Mogul in 2017. When Icahn acquired Pep Boys he also stated: “We believe that with our abundant resources and knowledge of the industry we will be able to grow this business and take advantage of consolidation opportunities, thereby benefiting customers, manufacturing partners and employees, as well as our shareholders.”
While we sincerely believe that Icahn’s main motivation for this investment is to invest in a good company that he believes is at an inflection point and is significantly undervalued, there is always the chance that he might want to own the entire company one day. This is a very small position for him and a good return would not move the needle as much as a synergistic integration into his automative business, but we see no reason why both things cannot be true.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments.
