/s3.amazonaws.com/arc-authors/morningstar/222a1c0d-911c-4064-ac93-f9d4516d0a06.jpg "Lithia Motors: Rivals Force a Higher Price for Pendragon Acquisition (1)")
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Lithia’s LAD agreement to buy the U.K.’s third-largest auto dealer, Pendragon, as discussed in our Sept. 18 note, brought subsequent rival bids from Penske Automotive Group and AutoNation, both for 32 pence per share. On Oct. 2, Lithia announced a new agreement with Pendragon for higher consideration equivalent to 35.4 pence per share. Cash paid by Lithia will now be GBP 397 million, up from GBP 280 million, and we are leaving our fair value estimate unchanged. The deal’s structure is not different from our Sept. 18 note and includes GBP 30 million paid by Lithia to acquire 16.7% of Pendragon’s remaining operations, which will become a publicly traded software as a services company called Pinewood Technologies. The extra GBP 117 million cash contribution is entirely for Pendragon’s Evans Halshaw mass market brands locations, the Stratstone premium brands stores, the CarStore online used vehicle marketplace, and Pendragon’s vehicle fleet management unit.
Pinewood will continue to sell its dealer management system, or DMS, and Lithia and Pinewood will each contribute GBP 10 million to form a 51% Lithia-owned joint venture to start selling Pinewood’s DMS in the United States. Lithia also announced on Oct. 2 that it has obtained preliminary commitments from major dealers to increase Pinewood’s DMS U.K. user count by 7,500, which, when added to Lithia’s 2,500 intended users in the U.K., would be about half of Pinewood’s growth objective for fiscal 2027. The deal remains expected to close in the fourth quarter.
It is unknown if Penske, AutoNation, or perhaps Group 1—which also has U.K. stores but has not bid on Pendragon—will make further bids, but it appears to us that Pendragon prefers Lithia. We can understand why because only Lithia’s offer provides the upside of Pinewood and the joint venture. We felt on Sept. 18 that Lithia was paying a great price for Pendragon, so perhaps Lithia’s competitors were partly interested in seeing it pay more for a top U.K. asset.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
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About the Author
About the Author
David Whiston, CFA, CPA, CFE
Strategist
David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.
Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.
Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.
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