Karsch Capital To CSK Auto (CAO): The Turnaround Plan Is Great, But We Still Want a Sale

In an amended 13D filing after the close Friday on CSK Auto Corp. (NYSE: CAO), 9.32% holder Karsch Capital said they are encouraged by the Company's recent announced that is has commenced a comprehensive, strategic review aimed at improving profitability and restoring top line growth. Karsch said the company should concurrently conduct a thorough review of strategic alternatives, including a sale of the Company. The firm said, "This would enable the Board to weigh the relative merits of selling the Company versus allowing the new management team time to turn the Company around." The firm said they will continue to activities of the Company and the Board very closely.

A Copy of the Letter:

The Board of Directors of CSK Auto Corporation ("CSK Auto" or the "Company"):

Karsch Capital Management, LP(1), as a holder of 9.32% of the outstanding common stock of CSK Auto's common stock, continues to monitor developments at the Company very closely. To this end, we are encouraged by the Company's announcement on September 5, 2007, that it has commenced a comprehensive,strategic review aimed at improving profitability and restoring top line growth. However, as we have stated previously, we believe that the CSK Auto Board of Directors should demonstrate a genuine commitment to enhancing shareholder value by concurrently conducting a thorough review of strategic alternatives, including a sale of the Company. This would enable the Board to weigh the relative merits of selling the Company versus allowing the new management team time to turn the Company around.

We continue to believe that a turnaround at CSK Auto should be very achievable because of the tremendous opportunity to improve the Company's severely depressed operating margins. Indeed, if management's plans to reduce pre-tax costs by $34 million in fiscal 2008 prove successful, that alone could improve EBITDA by over 20%, thereby enhancing shareholder value significantly.

Given the Board's poor track record overseeing CSK Auto, we remain skeptical about the Company's ability to achieve a successful turnaround. We believe it is imperative for the Company to provide the investment community with additional details about its turnaround plan - including specific objectives,clear benchmarks and a defined timetable for implementation and completion - in the near future. In particular, we expect to receive more details about the proposed cost cuts and other margin improvement initiatives, to help us and other shareholders better determine the achievability of these efforts and over what time frame.

We are pleased that the Board has met our request to modify the deadline for submission of stockholder proposals and/or director nominations prior to the Company's annual meeting. We will continue to monitor the activities of the Company and the Board very closely and will continue to carefully consider all options that could maximize the value of our significant investment in CSK Auto, including engaging in a proxy contest to replace some or all members of the Board of Directors.

Sincerely,

Michael A. Karsch

Large CSK Auto (CAO) Holder Again Urges The Company to Review Options

In an amended 13D filing after the close on CSK Auto Corp. (NYSE: CAO), 9.32% holder Karsch Capital again urged the company to conduct a review of strategic alternatives to weigh the relative merits of selling the Company versus giving a new management team time to turn around the business. The firm said, "It is increasingly evident that, under the right management team, such a turnaround should be relatively easy to achieve because of the tremendous opportunity to improve CSK Auto's operating margins." The firm continues to believe a sale of the company would be successful.

A Copy of the Letter:

To The Board of Directors of CSK Auto Corporation:

Karsch Capital Management, LP(1), as a holder of 9.32% of the outstanding common stock of CSK Auto's common stock, has continued to monitor the activities of the Company and its Board of Directors very closely. To this end,we urge the Board to take action in the near future that demonstrates a genuine commitment to enhancing shareholder value. In particular, we believe the Board should conduct a review of strategic alternatives in which it weighs the relative merits of selling the Company versus giving a new management team time to turn around the business. It is increasingly evident that, under the right management team, such a turnaround should be relatively easy to achieve because of the tremendous opportunity to improve CSK Auto's operating margins.

We continue to believe a sale of the company would be successful for the following two reasons (see our letter to the Board, dated October 9, 2006, for more detail): 1) The company is highly attractive to other publicly-traded autoparts retailers given their historical success with mergers, significant synergies that could be achieved from a transaction and the extreme difficulty in replicating CSK Auto's West Coast real estate presence; 2) CSK Auto is highly attractive to private equity firms given historically successful deals in the auto parts industry, the highly predictable and strong free cash flow generation characteristics of the business, robust capital markets and very attractive valuation. As indicated in our letter to the Board dated February20, 2007 we have received numerous inquiries about CSK Auto that lead us to believe that there is genuine interest from private equity firms in acquiring the Company. We believe CSK Auto's takeout value is at a substantial premium to today's price.

However, having reviewed the recently released financial statements in which historical operating results were revised upwardly, we recognize the merit in considering the alternative of turning around the Company under a new management team and potentially receiving a much greater premium. With the leadership and vision of an above-average CEO, we believe CSK Auto could execute a very achievable operating margin of 9% in 2009 and retain its current8x forward multiple on our EBITDA projections, which would result in a stock price well above $30 per share over the next 18 months. Depressed operating margins should swiftly return to 2004 operating margin levels of 8.3% given that the unsuccessful integration of Murray's has temporarily reduced EBITDA from that unit and prevented the full realization of synergies, the 2006 EBITDA includes one-time integration costs, associates have been distracted by significant senior management turnover and a commensurate lack of direction,and difficult trends in the auto parts industry in 2006 resulted in de-leverag eof fixed costs.

Under the direction of a high quality CEO, the company should be able to surpass the 8.3% operating margin levels it generated in 2004 under a subpar management team given that its category management efforts are inferior to competitors, direct sourcing and private label penetration stand below peers,buying from vendors can be improved, sales mix can be shifted more toward higher-margin hard parts versus lower-margin discretionary and front-end product, and below-peer sales per store can be enhanced through better merchandising, marketing, adjacencies, attachment rates and store-level compensation programs. Lastly, we believe an 8x forward EBITDA multiple is very reasonable given the quality of the auto parts business and the valuation of relevant competitors. Auto parts is a large, fragmented, predictable industry with very little influence from Wal-Mart and rational, margin-focused companies that do not use price as a weapon to gain market share, all of which beget high margins, returns on capital and free cash flow. This unique type of industrybackdrop provides turnarounds with a greater probability of success and less risk whereas industries with heavy promotional activity such as home furnishings have witnessed a number of failed turnarounds.

A sale of CSK Auto may still be the best option for shareholders, depending on where the bids fall, given the time value benefit of receiving a solid premium today versus an even better premium in 18 months, the execution risk that a new CEO could fail to improve operating margins, and the additional returns for CSK Auto shareholders if they were to possibly receive stock in one of the high-quality strategic buyers, whose stock should appreciate significantly in the years following the transaction given the notable earnings accretion and strategic value. Therefore, we believe a strategic review should be initiated so that both options can be properly considered and evaluated.

We believe the board has a very poor track record given two accounting probes,a near bankruptcy and a stock that has dramatically underperformed its key competitors, and therefore, we cannot presume for certain that the Board can execute hiring a high quality CEO. We expect to meet the new CEO immediately after that person is hired. If the Board hires a CEO that we do not believe is adequate for the turnaround, and does not conduct a strategic review, we will strongly consider all of our options including a proxy fight to replace some or all members of the Board.

Sincerely,

Michael Karsch

Karsch Capital Wants CSK Auto (CAO) To Initiate a Sale Process Immediately

In an amended 13D filing on CSK Auto Corp (NYSE: CAO) 9.4% holder Karsch Capital Management disclosed that on February 20, 2007, they sent another letter to the Board in which it revised the timing of its request that the company actively pursue a sale of the entire company.

Karsch said following an announcement from the company that it expects to complete its financial restatement by the end of March 2007, they now believe that the company should initiate a sale process immediately.

In the letter the firm said, "While we had previously believed that the most opportune time for the Board to undertake this action was upon the Company's filing of its financial statements, we now believe that the best and most efficient course of action is for the Board to put the Company up for sale immediately."

The firm also said, "Now that the Company has stated that it expects that it can file its financial statements no later than one month beyond the February 28, 2007 date set by the SEC, we have received numerous indications that potential acquirers would prefer to conduct their due diligence investigation of the Company now and thereby be in a position to make an acquisition proposal at or shortly after the date the Company files its financials."

A Copy of the Letter:

To The Board of Directors of CSK Auto Corporation ("CSK Auto" or the "Company"):

Karsch Capital Management, LP(1), as a holder of 9.3% of the outstanding common stock of CSK Auto's common stock, continues to feel strongly that it isin the best interests of all shareholders for the Board of Directors (the"Board") to put the Company up for sale for the reasons stated in our letter tothe Board, dated October 9, 2006. While we had previously believed that the most opportune time for the Board to undertake this action was upon the Company's filing of its financial statements, we now believe that the best and most efficient course of action is for the Board to put the Company up for sale immediately, as we detail below.

Since our last letter to the Board dated October 23, 2006, we have received numerous inquiries about CSK Auto that lead us to believe that there is genuine interest from private equity firms in acquiring the Company and from investment banks in financing a transaction for a prospective buyer. Now that the Company has stated that it expects that it can file its financial statements no later than one month beyond the February 28, 2007 date set by the SEC, we have received numerous indications that potential acquirers would prefer to conduct their due diligence investigation of the Company now and thereby be in a position to make an acquisition proposal at or shortly after the date the Company files its financials.

Further, while we understand that the Board, for business reasons, may not wish to allow competitors and other potential strategic buyers access to sensitive business information, hiring a nationally-recognized investment bank to run an auction process appropriately mitigates such considerations and such considerations are not applicable to financial buyers.

The debt capital markets are very strong right now. By putting the Company up for sale immediately, we believe the Board would increase the probability of a transaction given these current robust capital markets. We strongly feel that this would be the best course of action to maximize shareholder value.

Sincerely,

Michael Karsch