IT is an unusual tale. Lookers, a UK car dealership, is trying to buy a company three times its size by market value. Even more unusually, it intends to do so by outbidding Pendragon, a much larger competitor. But that’s what makes the looming bidding war for car dealership Reg Vardy so entertaining.
Lookers, run by chief executive Ken Surgenor, will this week update the market on its approach. Its offer will exceed Pendragon’s £450m (E665m, $796m) bid.
General Electric Capital owns almost 25% of Lookers and supports the bid attempt, which is the reason Lookers can afford Reg Vardy. Lookers’ gearing already stands at more than 60%.
Reg Vardy shareholders, mainly directors, who own 27.2% of its shares, support Pendragon’s bid, but this could fall away if Lookers makes a better offer. Reg Vardy’s chief executive, Sir Peter Vardy, has said he would consider Lookers’ forthcoming offer if he thought it would allow his company to better compete in the fragmented UK car dealership market.
But breaking the sale agreement with Pendragon would mean Reg Vardy paying £4.55m in compensation. Pendragon’s chances should therefore not be written off.
It has an option to buy 16.6% of Sir Peter’s stock at 800p per share. It can be exercised at any time until Pendragon’s offer lapses or is withdrawn. This would prevent Lookers from gaining 100% control of Reg Vardy and that would make it harder to integrate the dealerships if its bid succeeds. This unusual battle is about to become even more interesting.
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