NEW YORK (HedgeWorld.com)–Citigroup Global Markets Inc. will underwrite the sale, by the hedge funds associated with ESL Investments Inc., of 5.6 million shares in AutoZone Inc., the auto-parts retail company based in Memphis.

These shares constitute roughly 20% of ESL’s stake in AutoZone, acquired in a shelf-registration deal in April 2002.

In a joint statement Oct. 31, ESL and Citigroup represented that ESL also would sell to Citigroup an over-the-counter option providing for the purchase by an affiliate of Citigroup of 4.4 million shares of AutoZone common stock. The purchase price for the option was to be approximately US$6 million, and the exercise price was to be US$100 a share on Dec. 19. Over the weekend, though, Citigroup changed its corporate mind on this point. A statement Monday modified that of Friday, saying that ESL and Citigroup have “decided not to proceed” with the OTC option part of the transaction. They will proceed with the stock sale itself, though.

“After this offering, we [ESL] still will be a large shareholder of AutoZone,” said its chairman and chief executive, Edward S. Lampert, in the Friday statement, “and we continue to have great confidence in Steve Odland,” the president of AutoZone.

Mr. Lampert’s funds are activist and event driven. For example, they own 49% of the newly reorganized Kmart Corp. Previous HedgeWorld Story, a re-organization in which he played a major part despite being kidnapped and released in January.

CFaille@HedgeWorld.com