8:12 am, October 6, 2023
Automotive industry analysts think it’s highly likely Lithia’s latest offer to acquire Pendragon’s dealerships and leasing arm will go through.
Speaking to Car Dealer, the experts tipped the American giant’s latest £397m offer for the car dealer group’s assets to get the nod from shareholders.
Lithia made an increased bid worth the equivalent of 35.4p per share on Monday. This included upping the special dividend shareholders will receive next year from 16.5p to 24.5p.
The deal will see Pinewood, the group’s software arm, hived off and take Pendragon’s place on the London Stock Exchange, led by Bill Berman.
Both parties have pledged to invest in the software business and Lithia believes it can increase the DMS business by at least 30% thanks to promises it’s already received.
Industry analysts told Car Dealer that now Hedin and Penske have removed their offer from the table, the Lithia bid looks the most likely to succeed.
AutoNation, the former employer of Pendragon CEO Bill Berman, also placed a bid worth 32p per share, and could still increase it.
Sanjay Vidyarthi, motor industry analyst at brokers Liberum, said he thinks the Lithia Motors offer will now go through as it values the firm at 11 times its 2024 earnings.
Speaking to Car Dealer, he said: ‘The 35.4p/share that the Lithia deal values Pendragon at looks like a good deal, valuing Pendragon ahead of the historic average.
‘I think some shareholders might have preferred a complete exit, but others will see further upside potential from Pinewood as a listed entity, given Lithia’s growth plans.
‘With Hedin having pulled out, it feels unlikely, but not impossible, that AutoNation will come in with a higher offer now.
‘Despite the CEO’s ties with AutoNation, it is clear that the board is heavily in favour of the deal with Lithia, so I think it is likely that it will go through.’
Pendragon has irrevocable undertakings to back the deal from 28% of its shareholders, and the board.
It is not known how near-28% shareholder Hedin will vote, though. As it’s an asset sale by Pendragon rather than a full takeover, only a majority of shareholders are required to back it to see it go through.
Carl Smith, analyst at Zeus Capital, added: ‘The improved offer gives shareholders a 24.5p cash dividend and allows them to benefit from the upside of the accelerated growth plan of the new Pinewood Technologies listed entity.
‘With around 28% of shareholders having signed irrevocable undertakings to accept the deal, there’s a high chance the deal will go ahead.
‘Of course we do not know the voting intentions of Hedin Group, who could choose to vote against it. However, Hedin did release a statement in September 2022 that suggested they would be willing to sell their stake at 35p per share, and the proposed Lithia deal – at 35.4p total value – is now above this.’
Deal maker David Kendrick, CEO at accountancy firm UHY Hacker Young, also thinks the Lithia deal will now go through.
He told Car Dealer: ‘The bidders appear to have calmed down their activity and it appears that perhaps the Lithia deal will now move forward.
‘The valuation is getting to a “full up” level based on other deals and therefore I believe now this deal will happen.’
Pendragon is set to announce details of when shareholders will vote on the revised terms shortly in a new circular. The bid on the original offer that was scheduled for today has been postponed.
