Lithia (LAD) Sweetens Bid in Heated Pendragon Buyout Battle
The bidding war for the acquisition of Pendragon, UK’s third-largest automotive dealership group, escalated a notch higher when Lithia Motors LAD recently announced a 42% increase in its initial acquisition offer for Pendragon. The increased bid was in response to rival propositions from AutoNation AN and a joint bid from Hedin Mobility Group and Penske Automotive Group PAG.
On Sep 18, Pendragon had struck an agreement to sell its UK motor and vehicle management division to Lithia. The deal stoked the interest of other U.S. retail magnates, enticed by the prospect of capturing a robust footprint in UK's lucrative auto retail market. AutoNation, a significant player in retailing new and pre-owned vehicles in the United States, stepped onto the battlefield last week with a cash proposal of £447 million, translating to 32 pence per share. This move came shortly after Pendragon’s leading shareholder, Hedin Mobility Group, partnered with U.S.-based retailer Penske, sweetened its bid to 32 pence per share, after the prior bid of 28 pence per share was rejected by Pendragon.
In light of intensified competition for Pendragon's acquisition, Lithia has upped its bidding offer. The revised bid from Lithia now totals £397 million, valuing each share for existing Pendragon shareholders at around 35.4 pence. This revision is anticipated to augment the cash dividend payable to Pendragon's shareholders by 49% to 24.5 pence per share, while allowing them to retain roughly 83.3% ownership in Pinewood Tech. Besides, this acquisition paves the way for a rewarding joint venture to proliferate Pinewood's software into the North American market.
A key cornerstone of this revised offer revolves around the preliminary commitments Lithia secured from several prominent automotive retailers. These commitments entail the adoption and integration of Pinewood's dealer management systems throughout their various outlets. This agreement, which hinges on the successful completion of the Lithia transaction, signifies a rapidly expanding user base, with the addition of approximately 7,500 users. This represents 30% growth compared to Pinewood's user base as of December 2022. When coupled with Lithia's existing commitment of 2,500 users in the UK, this development is viewed as a significant step toward reaching nearly half of Pinewood's fiscal 2027 target.
The deal is expected to be funded with Lithia's existing on-balance sheet capacity, pending approval from Pendragon shareholders. If the deal goes through, it would broaden Lithia’s horizon and diversify its business operations by establishing a formidable presence in the UK market
Currently, the revised offer from Lithia has overshadowed the 32 pence per share bid from both the Penske/Hedin alliance and AutoNation, setting the stage for a three-pronged tussle. Each contender, AutoNation, Hedin Mobility Group allied with Penske Automotive, and Lithia, is pulling out all stops to claim the helm of the UK's third largest automotive dealership group. As the bidding war gathers momentum, it remains to be seen whether PAG and AN will counter Lithia's augmented offer to stay in the competition.
Zacks Rank & Other Key Pick
Lithia currently carries a Zacks Rank #2 (Buy). A top-ranked player in the same industry is Asbury Automotive ABG, which currently sports a Zacks Rank #1 (Strong Buy).
Asbury’s diversified product mix and multiple streams of income reduce its risk profile and position it for top-line growth. Strategic buyouts are helping the auto retailer increase its market share and boost its portfolio. Its ambitious plan to generate $32 billion in revenues by 2025 instills optimism. The company’s end-to-end e-commerce platform, Clicklane, is also set to buoy prospects. Asbury's commitment to increasing shareholder value is also encouraging.
The Zacks Consensus Estimate for ABG’s 2023 and 2024 EPS has moved north by 67 cents and $1.37, respectively, in the past 60 days. The company surpassed earnings estimates in the last four quarters, the average being 6.62%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report
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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
