8:16 am, June 21, 2023
The door is open for a rival bid to the £465m offer tabled by a Canadian firm for car dealer group Lookers – and a price that’ll pique attention has been outlined too.
Investment firm Schroder – which holds 4.1 per cent of Lookers’ stock – has said it would withdraw consent for the current deal if a rival bid ‘which equals or exceeds 110 per cent’ of the current offer is tabled.
That means a bid of around 132p per share, valuing the business at over half a billion pounds, could snatch the deal.
Lookers told the Stock Market yesterday it had agreed a deal with Alpha Auto Group to bid for the business via a vehicle named Global Auto Holdings.
The price offered was 120p per share. However, it needs agreement from shareholders to go ahead.
Lookers is hoping it will get that and the purchase will go through in Q3 or Q4 of this year.
The firm said it already had irrevocable undertakings from 42.1 per cent of shareholders, including Cinch (owned by Constellation Automotive Group) and investment funds Artemis, JO Hambro and Schroder.
They all submitted letters of intent – but Schroder set conditions, which were buried in the official announcement to the Stock Market. These included the nod towards the higher price that would interest them as well as the fact any new offer would have to come without conditions.
Cinch, Artemis and JO Hambro did not set conditions and have said they’ll vote for the deal, which has also been recommended by the Lookers board.
JO Hambro cashed in 8m shares yesterday after the price rose to 118p on the back of the takeover news. But today it said it still intends to sell its remaining holding as part of the sale.
Industry analyst Mike Jones said: ‘I would expect other UK and international retailers, including Lithia, to be currently looking at Lookers, particularly given the willingness of the large shareholders to sell and the trigger price of £1.32 per share.
‘The fact that this offer cannot come with pre-conditions means that the bidder cannot make it subject to manufacturer approval, increasing the risk for the purchaser and matching the risk also taken by Alpha in their bid.’
Car Dealer reported yesterday on comments from experts that the 120p per share offer looked ‘too cheap’.
UHY Hacker Young CEO David Kendrick told Car Dealer in a video about the announcement (above) that the deal was ‘excellent value’.
This morning, Liberum analyst Sanjay Vidyarthi told investors: ‘The recommended offer for Lookers at 120p/share is a decent premium, but not a knock-out offer, well below our previous target price of 150p.’
The current bid is an audacious one from the little-known Canadian Alpha Auto Group. Its ambitious move for Lookers surprised even the auto industry experts on the other side of the pond.
AAG is the relative minnow in the deal with a turnover of $1bn dollars and annual profits of $100m. Lookers turn over more than four times their suitor, with profits last year of £82.7m. AAG is funding the deal with borrowings from Canadian banks.
As of the end of April, Lookers had a property portfolio worth £290m and £66.5m in the bank – the equivalent of 92p per share, which does make the current offer look incredibly good value.
Rival bid
But who could table a rival bid for Lookers?
Cliff Banks, American car industry commentator, told Car Dealer: ‘Any number of US-based groups could make a play for Lookers and outbid AAG, or go after one of the other available UK retailers.
‘It’s an intriguing scenario. There is a lot of cash still to be deployed at both the public and private group level. Certainly, Group 1 and Lithia know the market while an AutoNation or Asbury play would be interesting.’
The most likely candidate to table a rival bid would be Lithia. It attempted to buy fellow listed car dealer group Pendragon last summer, but was thwarted by Hedin, the Swedish based business that later tables – and then withdrew – its own offer.
Lithia Motors, the NYSE-listed group, has said it wants to increase annual revenues to $50bn – last year it achieved $28bn – and it plans to do this via acquisitions.
It has already purchased the 50-site group Jardine earlier this year for £300m, making Lookers’ 150-dealership business look incredible value, even at £500m.
Kendrick added: ‘At 132p, Lookers still looks like a good buy.’
Lithia isn’t the only name in the frame. Plenty of other businesses are likely to be sizing Lookers up, especially now they know the price – and the board’s willingness to sell.
Who else could table a bid?
- Sytner-owner Penske Automotive – cash-rich and keen to grow, a combination of two of the top five most profitable car dealer groups would attract attention from the CMA. Chance of bid: 6/10
- Group 1 – the highly-profitable American based business already owns 70 dealerships here and last year made £310m profit from the UK businesses. Deal would make it the biggest group in the UK. Chance of a bid: 5/10
- AutoNation – The second largest dealer group in the States is run by CEO Mike Manley, a Brit who left Stellantis to join the firm in 2021. He knows the UK market well, but would that mean he wants a piece of the Lookers action? Chance of a bid: 6/10
- Lithia Motors – Highly acquisitive and desperate to grow, the firm tried to buy Pendragon last year, but was blocked. It recently bought Jardine for £300m. Could be put off by two large UK purchases in quick succession, but we wouldn’t rule them out. Chance of a bid: 7/10
- Hedin Group – Swedish firm offered to buy Pendragon last year, but backed out due to ‘market conditions’ in December. Trevor Finn, former Pendragon CEO, is an adviser. Just bought big in Germany, so might be distracted. Chance of a bid: 5/10
- Inchcape – the UK-based business is concentrating more these days on global distribution rather than retail, but it has the funds to do a deal. Still rather unlikely. Chance of a bid: 2/10
- AP Eagers – The Australian and New Zealand based car dealer group has a £4.6bn annual turnover. Firm believed to be interested in overseas expansion and the UK would not have language barrier issues to overcome. Chance of a bid: 4/10
- Emil Frey – one of Europe’s largest car dealer groups, but doesn’t have any holdings in the UK. Lookers would be a statement move for the business. Chance of a bid: 4/10
- Private equity – investment bankers might see Lookers as a bargain and be interested in taking it private. PE has form with TDR Capital owning Constellation Automotive Group, which owns previously listed Marshall Motor Group. Another fund could do the same. Chance of a bid: 6/10
Other American contacts told Car Dealer that there are several US and Canada based businesses that could ‘easily’ table an offer for Lookers.
The exchange rate has made UK-based car dealer groups look incredibly good value and the Stock Market’s dislike of them has meant they’ve never been highly valued.
It was this poor performance that led to Mark Lavery, boss of previously-listed group Cambria Automobiles, taking his business private in 2021 for £82.5m.
At Car Dealer Live 2023, he said: ‘The investment community in the UK doesn’t really understand automotive retail.
‘When you look at what’s happened to the value of sterling post-Brexit and what’s happened to the value of dollar post-interest rates going up, we represent extraordinary value to external investors.
‘Would I speculate on each of the three [Lookers, Vertu or Pendragon]? No, that would be unfair because I don’t have enough knowledge, but I do think that none of them will be in the public domain by the end of December this year.’
Not everyone thinks a rival offer will be forthcoming, though. Despite admitting he thinks the price is too cheap, Liberum’s Vidyarthi says he thinks another offer is unlikely to materialise – but he isn’t ruling out deals for Pendragon and Vertu to soon follow.
He added: ‘We think another approach is unlikely and we can understand why investors will be inclined to accept the offer, given macro conditions.
‘Our view remains that the sector remains in earnings upgrade territory. Balance sheets are strong and the consolidation opportunity is greater than ever.
‘Pendragon and Vertu are both cheap. We think Pendragon will be approached by Hedin again at some point. There has been very little speculation around Vertu, but it is the highest quality operator in the sector.’
