Lithia makes second bid for listed car dealer Pendragon with £280m offer

7:31 am, September 18, 2023

American giant Lithia Motors has swooped on listed dealer group Pendragon for a second time in a proposed deal worth £280m.

In a bulletin to the London Stock Exchange this morning, the companies announced the proposed sale of Pendragon’s car dealership businesses to Lithia.

The deal will see Pendragon’s dealer management software business Pinewood spun out into a separate business which will retain the group’s current position on the stock market, renamed Pinewood Technologies Inc.

Lithia’s offer is worth £280m which includes £30m for shares in the spun-off Pinewood business.

The deal equates to 16.5p per share for the sale of the motors business while shareholders will retain an 83.3 per cent holding in the software business.

The Lithia backed venture – which will include all of Pendragon’s car dealerships and leasing businesses – will see Lithia assume all of Pendragon’s net bank debt and pension obligations.

Pendragon says that after costs it intends to return £240m to shareholders. The deal is subject to approval of shareholders.

The firm says it has ‘irrevocable undertakings’ from at least 26.5 per cent of shareholders who back the deal including the directors.

The shareholders backing the deal include Schroder Investment Management Limited, Briarwood Capital Partners LP, Hosking Partners LLP, Farringdon Netherlands BV, Huntington Management LLC, and Sir Nigel Rudd.

It is not known whether Hedin, the group’s largest shareholder, will back the deal. In September last year it said it would block any rival bids for the firm as it held 26 per cent of the group’s shares.

However, this bid only requires a majority of 51 per cent of shareholders to agree.

The announcement follows speculation that Lithia was planning on bidding for a large UK dealership plc.

Car Dealer recently reported it was circling Lookers after the deal to sell to a Canadian firm Alpha Auto Group was announced, but it appears to have turned its attention back to Pendragon.

Bill Berman, chief executive of Pendragon said: ‘Pendragon has built one of the UK’s leading automotive retailing businesses, underpinned by a market leading dealer management system, the quality of our people, long-standing relationships with OEMs and excellent execution for customers.

‘The Pendragon board considers Lithia to be perfectly placed to build on this progress. The launch of Pinewood as a standalone company is a unique and exciting opportunity to create a best-in-class product for customers, which we can market globally and drive substantial value for our shareholders and in Lithia we have the perfect partner to help accelerate Pinewood’s push into the hugely attractive North American DMS market.’

Berman will continue to lead the Pinewood business and will be supported by chief financial officer Oliver Mann. As part of the deal, Lithia will roll out the firm’s software in its 50 UK businesses which includes Jardine – a dealer group it bought earlier this year for £300m.

Lithia will also create a joint venture with Pinewood Technologies Inc to enter the ‘high attractive’ North American market with both parties investing £10m each to facilitate the launch. The firm said it was targeting EBITDA profit of around £27m in 2027 for Pinewood.

Bryan DeBoer, chief executive of Lithia, said: ‘The strategic partnership with Pinewood Technologies and acquisition of Pendragon’s UK motor and vehicle management divisions is a massive step in delivering on our longer-term growth strategy.

‘We are excited about the great potential in Pinewood’s offering and envision our strategic partnership to further expand this SaaS business globally.

‘Additionally, the proposed acquisition presents a highly synergistic growth opportunity with our existing UK presence with Jardine Motors Group; provides a new adjacency with PVM; and expands our brand and geographic footprint while serving to further strengthen our existing OEM relationships.’

Ian Filby, non-executive chairman of Pendragon, added: ‘Pendragon has made strong progress executing its strategy in recent years and the business has been repositioned successfully as a digitally-enabled automotive retailer.

‘Today’s announcement follows an extensive strategic review undertaken by the board of Pendragon to maximise value for our stakeholders.

‘The proposed transaction provides shareholders with an immediate dividend close to the company’s undisturbed market capitalisation as well as ongoing ownership in an exciting technology company with improved growth prospects.’