18th Sep 2023 10:52
(Alliance News) - AJ Bell's Russ Mould on Monday said Pendragon PLC's deal with Lithia Motors Inc is an "interesting move" which will radically transform the business.
Pendragon is a Nottingham, England-based automotive retailer. Its shares jumped 27% to 23.50 pence each in London on Monday morning.
Pendragon said it has agreed to sell its entire UK motor business and leasing business to Lithia Motors, its North American rival.
Pendragon said it will sell Pendragon NewCo 2 Ltd, its entire UK motor business and leasing business, to Lithia UK Holding Ltd. Lithia UK Holding is a subsidiary of Lithia Motors. The UK motor business consists of Evans Halshaw, Stratstone & Car Store, and Pendragon Vehicle Management.
The arm will be sold at an "attractive valuation" of GBP250 million, Pendragon said.
Following completion of the disposal, Pendragon will operate as a stand alone Pinewood business, making it a pure-play software as a service business. It will retain its existing listing on the London Stock Exchange and change its name to Pinewood Technologies PLC.
"It's an interesting move and one that completely changes the investment case," said AJ Bell's Russ Mould.
He described the deal as "a takeover with a twist."
Pendragon also said that it has agreed a strategic partnership with Lithia for the the rollout of Pinewood, Pendragon's dealer management software, which will be rolled out to Lithia's existing 50 UK sites.
Pendragon added that the joint venture will "accelerate Pinewood's entry into the highly attractive North American DMS market".
This will be "underpinned" by a subscription by Lithia for 279.4 million Pendragon shares for a total of GBP30 million.
In total, the deal will return around GBP240 million in cash dividends to shareholders. Shareholders will receive 16.5p in a cash dividend after the transaction is completed, retain around 83% of the continuing Pendragon business, and gain an indirect interest in the North American joint venture.
Pendragon initially values this to be worth around 27.4p "with significant upside potential expected from the strategic partnership". This is a premium to Friday's closing price of 18.5p, it noted.
The transaction will require shareholder approval. If achieved, Pendragon expects completion in the final quarter of this year.
Pendragon was the subject of a GBP400 million takeover bid in July 2022 from Lithia Motors. However, the proposal was withdrawn after Hedin Mobility Group AB blocked it.
Hedin is a Swedish privately-owned investment company investing in businesses mainly related to the vehicle industry. Hedin is Pendragon's largest shareholder.
Non-Executive Chair Ian Filby said: "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."
By Sophie Rose, Alliance News reporter
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