UPDATE 1-CSK Auto to share confidential info with O'Reilly

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NEW YORK, Feb 7 (Reuters) - CSK Auto Corp CAO.N said on Thursday it agreed to share confidential information with O'Reilly Automotive Inc (ORLY.O), as part of CSK's ongoing strategic review. In return, O'Reilly agreed not take its unsolicited bid directly to shareholders.

On Feb. 1, auto parts retailer O'Reilly made an unsolicited bid for CSK Auto for about $350 million in cash plus $490 million in debt to expand into the key West Coast market. It made the offer after the two sides failed to reach a merger agreement in private talks.

The acquisition would add CSK's presence in the western United States to the Midwest and southeastern presence of O'Reilly, solidifying its place as the third-largest U.S. auto parts retail chain behind AutoZone Inc (AZO.N) and Advance Auto Parts Inc (AAP.N).

On Feb. 4, CSK Auto said it adopted a "poison pill" shareholder rights plan to block a takeover by O'Reilly. Any party that reached a 10 percent threshold of ownership would see its stake diluted, essentially blocking a bid.

O'Reilly, based in Springfield, Illinois, owns 2 million shares, or 4.9 percent, of CSK stock.

More than 20 parties have already signed confidentialty and standstill agreements to explore controlling or noncontrolling interests in CSK, which retained JP Morgan in December to develop alternatives.

"We are pleased that we have been able to reach an agreement with O'Reilly that will enable them to participate in our process," CSK's Chief Executive Larry Mondry said in a statement.

The fragmented U.S. auto parts retail sector is thought to be ripe for consolidation, with five major players holding about 35 percent of the market.

Analysts expect Advance Auto Parts, the nation's second-largest auto parts retailer, to step in with a stronger offer. Advance also lacks a strong presence in the West, where CSK dominates.

A merger between CSK and O'Reilly would give the combined company about 3,180 stores, placing it only about 50 stores behind Advance Auto Parts.

If Advance merged with CSK, its 4,577 stores would surpass AutoZone Inc to make it the largest U.S. auto parts retailer. (Reporting by Helen Chernikoff in New York and Shikhar Balwani in Bangalore; Editing by Derek Caney)