6th Apr 2006 13:02
Pendragon PLC06 April 2006 Not for release, publication or distribution, in whole or part, in, into or from the United States, Canada, Australia or Japan. FOR IMMEDIATE RELEASE 6 April 2006 FINAL OFFER by CITIGROUP GLOBAL MARKETS LIMITED ("citigroup") on behalf of Pendragon plc ("Pendragon") for LOOKERS PLC ("LOOKERS") Posting of Offer Document Further to the announcement made on 9 March 2006 of a final offer by Citigroupon behalf of Pendragon for Lookers (the "Offer"), Pendragon announces that thedocument containing the terms of the Offer (the "Offer Document") is beingposted to Lookers Shareholders today, together with a Form of Acceptance (the "Form of Acceptance") and a document containing information regarded by the UKFinancial Services Authority as equivalent to that of a prospectus (the "Information Memorandum"), which has been prepared in connection with the issueof new ordinary shares in Pendragon (the "New Pendragon Shares") to LookersShareholders as consideration under the terms of the Offer. Acceptances to the Offer should be received as soon as possible followingreceipt of the Offer Document and Form of Acceptance and in any event by nolater than 1.00 p.m. (London time) on 27 April 2006. The Offer Document includes the following letter from Sir Nigel Rudd, theChairman of Pendragon: "Dear Sir or Madam On 9 March 2006, the Board of Pendragon announced its final Offer for Lookers.Under the terms of the Offer, Lookers Shareholders will receive 1.15 PendragonShares for each Lookers Share that they hold. Pendragon announced on 27 January 2006 that it had, prior to that date, made twoformal approaches to the Board of Lookers to discuss with them the terms of apossible acquisition. Since then, Pendragon and its advisers have made threefurther attempts to arrange meetings to try to initiate discussions with theBoard of Lookers and its advisers regarding our proposals to combine the twocompanies. These meeting requests were rejected outright. As a result ofmanagement's negative response, and given what we believe are the compellingbenefits of this transaction to both sets of shareholders, Pendragon has decidedto make this Offer directly to Lookers Shareholders. In this letter, I will highlight some of the important financial and operationalreasons why Lookers Shareholders should accept the Pendragon Offer. Please note that the Offer is final and the deadline for acceptances is 1.00p.m. on 27 April 2006. The amount of the Offer will not be increased and thetimetable for the Offer to become unconditional as to acceptances will not beextended1. Therefore, please ensure that you submit your acceptance well inadvance of the deadline. 1 The Offer will not (except with the consent of the Panel) be kept openafter 1.00 p.m. on 27 April 2006 unless it has become unconditional as toacceptances. SIGNIFICANT AND IMMEDIATE PREMIUM Based on the Closing Price of 630 pence per Pendragon Share on 4 April 2006, thelatest practicable date prior to the publication of this document, the Offervalues each Lookers Share at 724.5 pence, representing a premium of: • 95 per cent. to the average Closing Price of 370.7 pence per LookersShare for the twelve months prior to 26 January 2006, the last business dayprior to the announcement by Pendragon of the terms of a possible offer forLookers • 42 per cent. to the Closing Price of 509.0 pence per Lookers Share on26 January 2006 • 74 per cent. to the Closing Price of 415.5 pence per Lookers Share on15 November 2005, the day prior to Reg Vardy's announcement that it was in talkswith Pendragon regarding a possible offer Please note that the Lookers Share prices quoted above are cum the Lookers FinalDividend of 10.5 pence per share which Lookers Shareholders will be entitled toreceive and retain under the terms of the Offer. On any of these measures, the Pendragon Offer represents a significant premiumto Lookers' historical share price and Lookers Shareholders have thisopportunity to capture that premium now by accepting this Offer. THE OFFER PRICE REPRESENTS A HIGHER EXIT MULTIPLE THAN PENDRAGON'S PAST DEALS Pendragon's Offer represents an extremely attractive multiple of adjustedearnings and is a higher multiple than our recent acquisition of Reg Vardy. TheReg Vardy price was established in open competition with Lookers and representeda full and fair value for Reg Vardy shareholders. Offer Price / Last Twelve Months' Earnings Pendragon / Lookers (as at 4 April 2006) 19.2xPendragon / Reg Vardy 19.1xPendragon / CD Bramall 11.3x I believe this Offer compares very favourably with other recent deals andrepresents full and fair value to Lookers Shareholders. THE OFFER PRICE REPRESENTS A HIGHER EXIT MULTIPLE THAN LOOKERS OFFERED TO PAYFOR REG VARDY The exit multiple that Pendragon is offering for your shares is higher than themultiple that your Board was willing or able to pay in their failed bid for RegVardy. In comparative terms, Reg Vardy was a much lower geared business thanLookers and therefore, arguably, should command a higher valuation than Lookers. Pendragon is able to pay this value for Lookers because of its ability toextract synergies from the integration of Lookers' dealerships into its existinginfrastructure. We believe that the transaction will become enhancing toearnings (before exceptionals) during the first twelve months of ownership aftertaking into account expected synergies. 2 2 This statement should not be interpreted to mean that the earningsper share of the Enlarged Pendragon Group will necessarily be greater than orequal to those in prior years. THIS OFFER CANNOT BE BLOCKED BY A SINGLE SHAREHOLDER WHO MAY HAVE DIFFERENTINTERESTS Pendragon's Offer will become unconditional as to acceptances as soon as wereceive acceptances in respect of more than 50 per cent. of Lookers Shares,rather than the typical level for UK takeovers of 90 per cent. The threshold forour Offer, which is the minimum permitted under the City Code, gives theopportunity to every Lookers Shareholder to make this transaction happen. Thismeans that the Pendragon Offer cannot be blocked by a single shareholder such asHamilton Finance, a subsidiary of General Electric Capital Corporation, whichowns 24.4 per cent. of Lookers. General Electric Capital Corporation has alsohad other business relationships with Lookers and therefore its interests may bedifferent to those of Lookers Shareholders generally. All that is needed to make this Offer successful is for a simple majority ofLookers Shares to be assented to the Offer. I believe this is a uniqueopportunity for you to exercise your right to determine the future of yourcompany. NO ONE ELSE IS OFFERING A HIGHER PRICE FOR LOOKERS In a sector which is undergoing consolidation, no other bidders have emergedsince Pendragon announced it was considering an offer for Lookers over ten weeksago. The fact that no other offers have emerged reinforces our belief that thePendragon Offer is a full and fair one. PENDRAGON HAS OUTPERFORMED LOOKERS IN SHAREHOLDER RETURNS Lookers Shareholders have endured underperformance when measured againstPendragon on a total shareholder return basis. Over the last three years,Pendragon Shareholders have enjoyed total shareholder returns over 50 per cent.higher than those which Lookers Shareholders have seen. Pendragon's successfulacquisition and integration strategy has had a visible and strongly positiveimpact on shareholder returns. Total Shareholder Returns Pendragon 448%Lookers 291% Lookers Shareholders should take this opportunity to own shares in Pendragon,which has delivered superior shareholder returns. PENDRAGON DIVIDEND GROWTH HAS BEEN OVER TWICE THAT OF LOOKERS Over the last fifteen years, Pendragon Shareholders have enjoyed actual compoundannual dividend growth of 12.8 per cent., over twice that of Lookers. This isreal growth, not simply promises. Dividend Growth Rate Pendragon 12.8%Lookers 6.2% In its preliminary results announcement for the year ended 31 December 2005, theLookers Board stated that it is "intending to initiate a more progressivedividend policy, increasing the total dividend payable by 15% per annum...".This is nearly two and a half times its historical compound annual dividendgrowth rate over the last 15 years. Pendragon's dividend growth is already at a level which Lookers management isonly aspiring to. I believe the statement by Lookers management is a knee jerkreaction to us making this Offer. SIZE IS IMPORTANT TO GAIN ECONOMIES OF SCALE Pendragon is over four times the size of Lookers in terms of revenues. Theimportance of scale in the motor retail industry should not be underestimatedand is, I believe, a key reason why Pendragon's growth model has been sosuccessful. Pendragon's scale has allowed it to follow a business model similarto other large successful retail organisations. We have developed a centralised support platform which allows local managementto focus on customer facing activities whilst other activities are performedmore efficiently and effectively offsite. Size provides the ability forPendragon to improve profitability by leveraging its existing infrastructureacross a large number of dealerships, in contrast to what we regard as theoutdated, decentralised back office structure chosen by Lookers. Being biggeralso provides benefits when negotiating terms with suppliers. The efficiencies derived from scale are clear in the margin differential betweenthe two businesses. Pendragon's margins are over a third higher than those ofLookers.Year Pendragon Adjusted Operating Profit Lookers Adjusted Operating Profit Margin Margin 2005 3.0% 2.2%2004 2.8% 1.9%2003 2.8% 1.9% THE LOOKERS ACQUISITION IS LOW RISK WITH REGARD TO MANUFACTURER RELATIONS Within the European Union, the rules that govern the franchising relationshipbetween retailers like us and motor vehicle manufacturers were fundamentallychanged in 2003 in a way which strengthened the retailers' position. Amongstother things, we now have the unrestricted right to buy franchises if we alreadyhave a franchise of that particular brand. The rules also protect us fromdiscrimination at the hands of manufacturers, whether in relation to the supplyof new cars or any other aspect of the retailer/manufacturer relationship. Thismeans that, in addition to the good working relationships we have with ourmanufacturer partners, our franchises are safeguarded by the European Unionrules relating to our industry. In the course of making large acquisitions, it is inevitable for us that, withinthe acquired company, there will be a small number of brands where we do notpresently hold a franchise agreement. We will seek to negotiate with themanufacturers concerned and are confident that we will achieve a successfuloutcome. For example, in the case of Reg Vardy's Renault franchise, wesuccessfully negotiated to become a member of Renault's network. THE LOOKERS ACQUISITION IS LOW RISK WITH REGARD TO INTEGRATION Consistent with Pendragon's previous acquisitions, we have developed a detailedplan for the integration of Lookers in conjunction with that of Reg Vardy.Pendragon's dealership support structure has been developed with the specificobjective of allowing the effective and efficient integration of newdealerships. In addition, Pendragon is organised along franchise lines andwithin that structure, where appropriate, there is also a regional structure. Combining Pendragon with Lookers should be looked upon as a series of smallintegrations created by splitting the Lookers business down into manageablepieces, normally along franchise lines. These smaller parts of Lookers will beallocated across a group of highly experienced Pendragon operational managersand accountants. The integration process is coordinated and monitored by seniormanagement through a real-time electronic integration task list. Pendragon's integration systems worked extremely well with CD Bramall which atthe time of its acquisition was a business almost the same size as Pendragon -in terms of relative sizes, the combination of Lookers plus Reg Vardy withPendragon is very similar. PENDRAGON HAS A SUCCESSFUL AND CONSISTENT STRATEGY Pendragon's stated strategy is to grow its relationships with selectmanufacturing partners and to deliver the benefits of increased scale through acombination of organic growth and further industry consolidation, consistentwith its acquisitions of CD Bramall and Reg Vardy and its offer for Lookers. The Board of Lookers has a confused strategy. On the one hand it says that itwishes to participate in the consolidation of the industry, on the other hand itsays that it wants to return value to shareholders. In order to participate inconsolidation, businesses like Lookers need to have the financial resources tomake acquisitions. By promising a return of value to shareholders, they may welldiminish their ability to undertake future acquisitions, either piecemeal ortransformational. I believe a company has to be able to communicate a clear, consistent strategyso that shareholders can judge management's performance and ultimately hold themaccountable if, as a consequence of an ill-conceived strategy, the company doesnot achieve its true potential. CURRENT TRADING AND UPDATE ON REG VARDY We said in our Annual Report and Accounts for the year ended 31 December 2005that we expected this year's new car market to be down by around five per cent.This remains our view. Trading in quarter one of the year is particularlyimportant as it includes March, which is usually the biggest month in terms ofnew car registrations. Trading across the Pendragon Group, in this first quarter, is anticipated to bein line with our expectations. With regard to the Reg Vardy acquisition, ourexpectations have been exceeded in terms of quality of people and the standardof systems and processes. The integration of the two businesses has commencedand is proceeding according to plan. LOOKERS SHAREHOLDERS CAN TAKE PART IN THE BENEFITS OF SECTOR CONSOLIDATION NOW -WHY WAIT? The Pendragon Offer gives Lookers Shareholders the opportunity to access thesynergies of consolidation, including the benefits of our recent acquisition ofReg Vardy. The Enlarged Group will have the financial flexibility to continue todrive industry consolidation and with the required infrastructure already inplace to absorb new acquisitions efficiently and effectively. The alternative isto wait patiently for Lookers management to deliver similar value to LookersShareholders - if they can. LOOKERS SHAREHOLDERS NEED TO DECIDE NOW WHETHER TO REMAIN A LOOKERS SHAREHOLDER,AND FACE: • The risk of being a more leveraged company, unable to participatemeaningfully in industry consolidation following the return of value mentionedby the Lookers Board • More limited economies of scale as the number 5 competitor in the UKmarket • An uncertain long term corporate strategy • A future with a single shareholder, whose interests may not be alignedwith those of shareholders generally, being able to determine whether or not atypical takeover offer is successful • A share price that may return to historical levels if the PendragonOffer is not successful. Remember that the average Lookers Share Price duringthe year prior to our approach was only 370.7p OR ENJOY THE BENEFITS OF BEING A PENDRAGON SHAREHOLDER: • Significant and immediate premium • Higher valuation multiple than Pendragon's other recent deals • Investment in Pendragon Shares which have outperformed and been moreliquid than Lookers • Benefits of greater economies of scale with the number 1 UK motorvehicle retailer • Opportunity to participate in future industry consolidation led by amanagement team experienced in delivering and integrating large acquisitions I believe that the choice is clear and the case to accept the Pendragon Offer iscompelling. I urge you to accept the Offer as soon as possible, but in any eventby 1.00 p.m. on 27 April 2006. Yours faithfully Sir Nigel Rudd Chairman" Please see the Appendix to this Announcement for further information on thesources and bases of certain statements set out in the letter above. Posting of Shareholder Circular In addition, Pendragon will today be posting to its shareholders a Class 1Circular (the "Circular") setting out the details of the acquisition andcontaining a notice convening an extraordinary general meeting of shareholders(the "EGM") to approve the acquisition of Lookers and the resolutions necessaryin connection with the issue of the New Pendragon Shares. Pendragon Shareholderswill also receive a copy of the Information Memorandum. The EGM will be held atLoxley House, 2 Oakwood Court, Little Oak Drive, Annesley, Nottingham NG15 0DRon 28 April 2006 at 10.00 a.m. A copy of the Circular and the Information Memorandum will be submitted to theUK Financial Services Authority for publication through the document viewingfacility which is situated at The Financial Services Authority, 25 NorthColonnade, Canary Wharf, London E14 5HS. Availability of Documents Copies of the Circular and Information Memorandum are available for collectionby Pendragon shareholders from the offices of Citigroup Global Markets Limited,Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB during normalbusiness hours on any weekday (Saturdays and public holidays excepted). Copies of the Offer Document, Form of Acceptance and Information Memorandum areavailable for collection by Lookers shareholders from the offices of CitigroupGlobal Markets Limited, Citigroup Centre, Canada Square, Canary Wharf, LondonE14 5LB during normal business hours on any weekday (Saturdays and publicholidays excepted). Current Trading The Offer Document, Circular and Information Memorandum also contain an updateas to the current trading and prospects of the Pendragon Group, the text ofwhich is included in the copy of the letter from the Chairman of Pendragon setout above. Responsibility The directors of Pendragon accept responsibility for the information containedin this announcement, save that the only responsibility accepted by them inrespect of information in this announcement relating to Lookers and its group,which has been compiled from public sources, is to ensure that such informationhas been correctly and fairly reproduced and presented. Subject as aforesaid, tothe best of the knowledge and belief of the directors of Pendragon (who havetaken all reasonable care to ensure that such is the case), the informationcontained in this announcement is in accordance with the facts and does not omitanything likely to affect the import of such information. ENQUIRIES Pendragon PLC Tel: 01623 725 114Trevor Finn, Chief Executive David Forsyth, Finance Director Citigroup Global Markets Limited Tel: 020 7986 4000Philip Robert-Tissot Sam Small Chris Zeal (Corporate Broking) Finsbury GroupRupert Younger Tel: 020 7251 3801 Gordon Simpson Citigroup Global Markets Limited, which is authorised and regulated in theUnited Kingdom by the Financial Services Authority, is acting exclusively forPendragon and no one else in connection with the Offer and will not beresponsible to any other person for providing the protections afforded toclients of Citigroup Global Markets Limited or for providing advice in relationto the Offer. The contents of this announcement have been approved, solely for the purposes ofsection 21 of the Financial Services and Markets Act 2000, by Citigroup GlobalMarkets Limited of Citigroup Centre, Canada Square, Canary Wharf, London E145LB. This announcement does not constitute, or form part of, any offer for, or anysolicitation of any offer for, securities. Any acceptance or other response tothe Offer should be made only on the basis of information referred to in theOffer Document. The Offer is not being and will not be made, directly or indirectly, in or into,or by use of the mails of, or by any means or instrumentality (including,without limitation, facsimile transmission, electronic mail, telex or telephone)of interstate or foreign commerce of, or any facilities of a national securitiesexchange of, the United States, Canada, Australia or Japan and the Offer willnot be capable of acceptance by any such use, means, instrumentality orfacility, directly or indirectly from or within the United States, Canada,Australia or Japan. Accordingly, neither this Announcement nor the InformationMemorandum nor the Offer Document nor the Form of Acceptance is being, and mustnot be, mailed or otherwise forwarded, transmitted, distributed or sent in, intoor from the United States of America, Canada, Australia or Japan. Doing so mayrender invalid any purported acceptance of the Offer. All Lookers Shareholdersor other persons, (including nominees, trustees or custodians) who would orotherwise intend to, or may have a contractual or legal obligation to, forwardthis Announcement and/or the Information Memorandum and/or the Offer Documentand/or the Form of Acceptance to any jurisdiction outside the United Kingdom,should refrain from doing so and seek appropriate professional advice beforetaking any action. The Offer is not an offer of securities for sale in the United States of Americaor in any jurisdiction in which such an offer is unlawful. The New PendragonShares to be issued in connection with the Offer have not been, nor will theybe, registered under the US Securities Act of 1933, as amended, or under thesecurities laws of any state of the United States of America and may not beoffered or sold in the United States of America, absent registration or anapplicable exemption from registration. No public offering of the securitieswill be made in the United States of America. The relevant clearances have notbeen, and will not be, obtained from the securities commission of any provinceor territory of Canada; no prospectus or a prospectus equivalent has been, orwill be, lodged with, or registered by, the Australian Securities andInvestments Commission or the Japanese Ministry of Finance and the NewPendragon Shares have not been, and nor will they be, registered under oroffered in compliance with applicable securities laws of any state, province,territory or jurisdiction in Canada, Australia or Japan. Accordingly, PendragonShares may not (unless an exemption under relevant securities laws isapplicable) be offered, sold, resold or delivered, directly or indirectly, in orinto Canada, Australia or Japan or any other jurisdiction outside the UnitedKingdom if to do so would constitute a violation of the relevant laws of, orrequire registration thereof in, such jurisdiction or to, or for the account orbenefit of, a person located in Canada, Australia or Japan. This Announcement contains a number of forward-looking statements relating toPendragon and Lookers with respect to, among others, the following: financialconditions; results of operation; the businesses of Pendragon and Lookers;future benefits of the transaction; and management plans and objectives.Pendragon considers any statements that are not historical facts as "forward-looking statements". They involve a number of risks and uncertaintiesthat could cause actual results to differ materially from those suggested by theforward-looking statements. Important factors that could cause actual resultsto differ materially from estimates or forecasts contained in theforward-looking statements include, among others, the following possibilities:future revenues are lower than expected; costs or difficulties relating to thecombination of the businesses of Pendragon and Lookers, or of other futureacquisitions, are greater than expected; expected cost savings from thetransaction or from other future acquisitions are not fully realised or notrealised within the expected time frame; competitive pressures in the industryincrease; general economic conditions or conditions affecting the relevantindustries, whether internationally or in the places Pendragon and Lookers dobusiness are less favourable than expected, and/or conditions in the securitiesmarket are less favourable than expected. Except as required by the ProspectusRules, Listing Rules and Disclosure Rules of the UK Listing Authority, theLondon Stock Exchange or applicable law, Pendragon expressly disclaims anyobligation or undertaking to release publicly any updates or revisions to anyforward-looking statements contained in this announcement to reflect any changein Pendragon's expectations with regard thereto or any change in events,conditions or circumstances on which any statement is based. APPENDIX I SOURCES AND BASES (a) Unless otherwise indicated, the statements in this announcement are theviews and beliefs of the directors of Pendragon. (b) Unless otherwise indicated, the information in this announcement isderived from Lookers' published audited preliminary results for the year ended31 December 2005, Lookers' published consolidated annual report and accounts forthe years ended 31 December 1999 to 2004 and for the years ended 30 September1990 to 1998 or from Pendragon's published consolidated annual report andaccounts for the years ended 31 December 1990 to 2005. (c) The closing middle market prices of Pendragon Shares and Lookers Shareshave been derived from the Daily Official List. (d) Premium Based on the Closing Price of 630 pence per Pendragon Share on 4 April 2006,being the latest practicable date prior to the publication of the OfferDocument, and the Offer of 1.15 Pendragon Shares for each Lookers Share, theOffer values each Lookers Share at 724.5 pence. The average Closing Price for Lookers Shares of 370.7 pence for the year priorto Pendragon's approach is the average Closing Price for Lookers Shares for theperiod from 27 January 2005 to 26 January 2006, being the last business dayprior to the announcement by Pendragon of the terms of a possible offer forLookers. The Offer represents a premium of 95.4 per cent. to this average price,calculated using 724.5 pence divided by 370.7 pence and subtracting 1 andmultiplying by 100 per cent. (in order to express solely the increase as apercentage). The Closing Price for Lookers Shares on 26 January 2006 was 509.0 pence. TheOffer represents a premium of 42.3 per cent. to this closing price, calculatedusing 724.5 pence divided by 509.0 pence and subtracting 1 and multiplying by100 per cent. (in order to express solely the increase as a percentage). The Closing Price for Lookers Shares on 15 November 2005 was 415.5 pence. TheOffer represents a premium of 74.4 per cent. to this closing price, calculatedusing 724.5 pence divided by 415.5 pence and subtracting 1 and multiplying by100 per cent. (in order to express solely the increase as a percentage). (e) Exit multiples Pendragon's Offer for Lookers represents an exit price/last twelve months'earnings multiple of 19.2x, calculated by dividing 724.5 pence, being theimplied price of the Pendragon Offer based on Pendragon's share price of 630pence on 4 April 2006 and the Offer terms of 1.15 Pendragon Shares for eachLookers Share, by 37.7 pence, being Lookers' adjusted earnings per share for theyear ended 31 December 2005, extracted from the "Consolidated Income Statement(Summarised)" section of Lookers' audited preliminary results for the year ended31 December 2005. The earnings per share number is stated before exceptionalitems, goodwill impairment and amortisation of intangible assets. Pendragon's offer for Reg Vardy represented an exit price/last twelve months'earnings multiple of 19.1x, calculated by dividing 900 pence, being thePendragon offer price for each Reg Vardy share, by 47.1 pence, being Reg Vardy'sadjusted earnings per share for the last twelve months ended 31 October 2005.Reg Vardy's adjusted earnings per share for the last twelve months ended 31October 2005 is calculated by adding the adjusted earnings per share for the sixmonths ended 31 October 2005 of 26.7 pence to the adjusted earnings per sharefor the year ended 30 April 2005 of 46.0 pence and subtracting the adjustedearnings per share for the six months ended 31 October 2004 of 25.6 pence. Theseearnings per share numbers are extracted from note 5 of Reg Vardy's InterimResults for the six months ended 31 October 2005. The earnings per share numbersare stated before exceptional items and amortisation of intangible assetsarising on acquisition. Pendragon's offer for CD Bramall represented an exit price/last twelve months'earnings multiple of 13.3x, calculated by dividing 600 pence, being thePendragon offer price for each CD Bramall share, by 53.0 pence, being CDBramall's adjusted earnings per share for the last twelve months ended 30 June2003. CD Bramall's adjusted earnings per share for the last twelve months ended30 June 2003 is calculated by adding the earnings per share for the six monthsended 30 June 2003 of 31.27 pence to the earnings per share for the year ended31 December 2002 of 45.29 pence and subtracting the earnings per share for thesix months ended 30 June 2002 of 24.71 pence. To this is added CD Bramall'samortisation per share for the last twelve months ended 30 June 2003, calculatedby adding the amortisation per share for the six months ended 30 June 2003 of0.7 pence (being amortisation for the six months ended 30 June 2003 of £269,000,assumed to equal half that of the twelve months to 31 December 2003, divided bythe weighted average number of ordinary shares in issue of 38,204,809) to theamortisation per share for the year ended 31 December 2002 of 0.9 pence (beingamortisation for the twelve months ended 31 December 2002 of £328,000 divided bythe weighted average number of ordinary shares in issue of 37,820,920) andsubtracting the amortisation per share for the six months ended 30 June 2002 of0.4 pence (being amortisation for the six months ended 30 June 2002 of £164,000,assumed to equal half that of the twelve months to 31 December 2002, divided bythe weighted average number of ordinary shares in issue of 37,705,005). Earningsper share numbers are extracted from page 38 of Pendragon's offer document inrelation to its acquisition of CD Bramall, amortisation numbers are extractedfrom page 15 of CD Bramall's 2003 Report and Accounts. The weighted averagenumber of ordinary shares for the six months ended 30 June 2003 and the sixmonths ended 30 June 2002 are extracted from page 41 of Pendragon's offerdocument in relation to its acquisition of CD Bramall, and the weighted averagenumber of ordinary shares for the twelve months ended 31 December 2002 isextracted from page 19 of the same document. The earnings per share numbers arestated before amortisation. Lookers' offer for Reg Vardy represented an exit price/last twelve months'earnings multiple of 18.6x, calculated by dividing 875 pence, being the Lookersoffer price per Reg Vardy share, by 47.1 pence, being Reg Vardy's adjustedearnings per share for the last twelve months ended 31 October 2005 as detailedabove. (f) Gearing Reg Vardy's total debt to net assets ratio was 30.8 per cent. at 31 October2005, being Reg Vardy's last published reporting period end prior to Pendragon'sacquisition of the company. This is calculated using total debt at 31 October2005 of £63.3m, being the sum of £7.1m and £56.1m, which were Reg Vardy's shortterm and long term debt positions respectively, divided by £205.1m, which wasReg Vardy's net assets position. All three numbers are extracted from the "Consolidated Balance Sheet" section of Reg Vardy's interim results for the sixmonths ended 31 October 2005. Reg Vardy's net debt to net assets ratio was 10.5 per cent. at 31 October 2005,being Reg Vardy's last published reporting period end. This is calculated usingnet debt at 31 October 2005 of £21.5m, being the sum of £7.1m and £56.1m, whichwere Reg Vardy's short term and long term debt positions respectively,subtracting £41.8m, which was Reg Vardy's cash and cash equivalents position,divided by £205.1m, which was Reg Vardy's net assets position. All four numbersare extracted from the "Consolidated Balance Sheet" section of Reg Vardy'sinterim results for the six months ended 31 October 2005. Lookers' total debt to net assets ratio was 82.0 per cent. at 31 December 2005.This is calculated using total debt at 31 December 2005 of £74.0m, being the sumof £21.3m and £52.7m, which were Lookers' short term and long term debtpositions respectively, divided by £90.2m, which was Lookers' net assetsposition. All three numbers are extracted from the "Consolidated Balance Sheet(Summarised)" section of Lookers' audited preliminary results for the year ended31 December 2005. Lookers' net debt to net assets ratio was 79.4 per cent. at 31 December 2005.This is calculated using net debt at 31 December 2005 of £71.6m, being the sumof £21.3m and £52.7m, which were Reg Vardy's short term and long term debtpositions respectively, subtracting £2.4m, which was Lookers' cash and cashequivalents position, divided by £90.2m, which was Lookers' net assets position.All four numbers are extracted from the "Consolidated Balance Sheet (Summarised)" section of Lookers' audited preliminary results for the year ended 31 December2005. (g) Hamilton Finance The statement that Hamilton Finance owns 24.4 per cent. of Lookers is extractedfrom the web page entitled "Major Shareholders" on the Lookers web site. (h) Total shareholder return The three year total shareholder return percentages for Pendragon and Lookersare calculated using the Datastream return index ("RI") for Pendragon andLookers over the period from 27 January 2003 to 26 January 2006, being the lastbusiness day prior to the announcement by Pendragon of the terms of a possibleoffer for Lookers. Total shareholder return is the theoretical growth in valueof a shareholding over a specified period, assuming that dividends arere-invested to purchase additional units of an equity at the closing priceapplicable on the ex-dividend date. Pendragon's total shareholder return of 448per cent. is calculated as 3,901 pence, being Pendragon's RI on 26 January 2006,divided by 712 pence, being Pendragon's RI on 27 January 2003, subtracting 1 andmultiplying by 100 per cent. (in order to express solely the increase as apercentage). Lookers' total shareholder return of 291 per cent. is calculated as59,085 pence, being Lookers' RI on 26 January 2006, divided by 15,099 pence,being Lookers' RI on 27 January 2003, and subtracting 1 and multiplying by 100per cent. (in order to express solely the increase as a percentage). Thisdemonstrates that Lookers Shareholders have experienced underperformance whenmeasured against Pendragon on a total shareholder return basis over this period. The statement that over three years, Pendragon Shareholders have enjoyed totalshareholder returns over 50 per cent. higher than those which LookersShareholders have seen is calculated by taking Pendragon's total shareholderreturn over the period of 448 per cent., dividing by Lookers' total shareholderreturn over the period of 291 per cent. and subtracting 1 and multiplying by 100per cent. (in order to express solely the increase as a percentage), to give 54per cent. Pendragon's RI increased 336p (20.9 per cent.) from 1,603 pence on 22 January2004, being the day before the announcement of its offer to acquire CD Bramall,to 1,939 pence on 23 January 2004. It increased 364p (10.6 per cent.) from 3,418pence on 15 November 2005, being the day before Reg Vardy's announcementconfirming that it had received an approach from Pendragon, to 3,782 pence on 16November 2005. The increase on 23 January 2004 of 20.9 per cent. is the largestsingle day increase in percentage terms in the three years from 27 January 2003to 26 January 2006, and both increases are considerably above the average singleday increase in the three year period of 0.2 per cent. (i) Dividend growth rates Pendragon's 15 year compound annual dividend growth rate of 12.8 per cent. iscalculated using 13.20 pence, being the total dividend per share attributable tothe year ended 31 December 2005, extracted from page 1 of Pendragon's AnnualReport and Accounts 2005, divided by 2.16 pence, being the adjusted totaldividend per share attributable to the year ended 31 December 1990, taking thefifteenth root (representing the fifteen annual periods) and subtracting 1 andmultiplying by 100 per cent. (in order to express solely the increase as apercentage). The total dividend per share attributable to the year ended 31December 1990 of 2.16 pence is calculated using the reported total dividend pershare of 5.40 pence, extracted from page 2 of Pendragon's 1990 Annual Report andAccounts, divided by 5/2, reflecting the 3 for 2 bonus share issue whichoccurred on 15 July 2003, extracted from page 4 of Pendragon's 2003 AnnualReport and Accounts. Lookers' 15 year compound annual dividend growth rate of 6.2 per cent. iscalculated using 15.25 pence, being the total dividend per share attributable tothe year ended 31 December 2005, extracted from the "2005 Results Highlights"section of Lookers' 2005 audited preliminary results for the year ended 31December 2005, divided by 6.20 pence, being the total dividend per shareattributable to the year ended 31 September 1990, extracted from page 2 ofLookers' 1990 Annual Report and Accounts, taking the fifteenth root(representing the fifteen annual periods) and subtracting 1 and multiplying by100 per cent. (in order to express solely the increase as a percentage). Pendragon's 15 year compound annual dividend growth rate from 1990 to 2005 of12.8 per cent. is therefore more than twice the compound annual dividend growthrate over the same years for Lookers, which is 6.2 per cent. The Lookers Board stated in its audited preliminary results for the year ended31 December 2005 that it intended to increase the total dividend payable by 15per cent. per annum. This is 2.43 times its historical compound annual dividendgrowth rate over the past 15 years of 6.2 per cent. (j) Revenues Pendragon's 2005 revenues pro forma for the acquisition of Reg Vardy of £5,327mare calculated (accurate to the nearest whole number) by adding £3,284.5m, beingPendragon's revenues for the year ended 31 December 2005, extracted from page 36of Pendragon's 2005 Annual Report and Accounts, and £2,042.7m, being Reg Vardy'srevenues for the last twelve months ended 31 October 2005 (being Reg Vardy'slast published reporting period end). Reg Vardy's revenues for the last twelvemonths are calculated by adding £1,896.0m, being Reg Vardy's revenues for theyear ended 30 April 2005, and £1,080.3m, being Reg Vardy's revenues for the sixmonths ended 31 October 2005, and subtracting £933.7m, being Reg Vardy'srevenues for the six months ended 31 October 2004. These revenue numbers areextracted from the "Consolidated Income Statement" section of Reg Vardy'sinterim results for the six months ended 31 October 2005. Lookers' 2005 revenues of £1,232m are extracted (accurate to the nearest wholenumber) from the "Consolidated Income Statement (Summarised)" section ofLookers' audited preliminary results for the year ended 31 December 2005. Pendragon's 2005 revenues, pro forma for Reg Vardy, of £5,327m are 4.3 timesLookers' 2005 revenues. (k) Adjusted operating profit margins Pendragon's adjusted operating profit margin of 3.0 per cent. is calculatedusing £98.8m, being Pendragon's adjusted operating profit for the year ended 31December 2005, divided by £3,284.5m, being Pendragon's revenues for the yearended 31 December 2005. These numbers are extracted from page 36 of Pendragon's2005 Annual Report and Accounts. Adjusted operating profit is defined asoperating profit before goodwill impairment, closure and integration costs andother income. Lookers' adjusted operating profit margin of 2.2 per cent. is calculated using£27.1m, being Lookers' operating profit before amortisation and exceptionalitems for the year ended 31 December 2005, divided by £1231.6m, being Lookersrevenues for the year ended 31 December 2005. These numbers are extracted fromthe "Consolidated Income Statement (Summarised)" section of Lookers' auditedpreliminary results for the year ended 31 December 2005. Adjusted operatingprofit is defined as operating profit before exceptional items, goodwillimpairment and amortisation of intangible assets. Pendragon's adjusted operating profit margin in 2004 of 2.8 per cent. iscalculated using £87.7m, being Pendragon's operating profit for the year ended31 December 2004 before goodwill impairment, closure and integration costs andother income, divided by £3,168.2m, being Pendragon's revenues for the yearended 31 December 2004. Both numbers are extracted from page 36 of Pendragon's2005 Annual Report and Accounts. Lookers' adjusted operating profit margin in 2004 of 1.9 per cent. is calculatedusing £20.7m, being Lookers' operating profit for the year ended 31 December2004 before exceptional items, goodwill impairment and amortisation ofintangible assets, divided by £1,093.8m, being Lookers revenues for the yearended 31 December 2004. Both numbers are referred to in the "Consolidated IncomeStatement (Summarised)" section of Lookers' audited preliminary results for theyear ended 31 December 2005. Pendragon's adjusted operating profit margin in 2003 of 2.8 per cent. iscalculated using £50.8m, being Pendragon's operating profit for the year ended31 December 2003 before goodwill amortisation and exceptionals, divided by£1,841.6m, being Pendragon's revenues for the year ended 31 December 2003. Bothnumbers are extracted from page 32 of Pendragon's 2003 Annual Report andAccounts. Lookers' adjusted operating profit margin in 2003 of 1.9 per cent. is calculatedusing £17.9m, being Lookers' operating profit for the year ended 31 December2003 before goodwill amortisation and exceptional items, divided by £961.4m,being Lookers revenues for the year ended 31 December 2003. Both numbers areextracted from page 27 of Lookers' 2003 Annual Report and Accounts. Pendragon's margins are over a third higher than those of Lookers. This issupported by the fact that Pendragon's adjusted operating profit margin in 2005is 36.7 per cent. higher than Lookers', 36.7 per cent. being 3.0 per cent.divided by 2.2 per cent. and subtracting 1 and multiplying by 100 per cent. (inorder to express solely the increase as a percentage); it is 46.2 per cent.higher than Lookers' in 2004, being 2.8 per cent. divided by 1.9 per cent. andsubtracting 1 and multiplying by 100 per cent. (in order to express solely theincrease as a percentage); and it is 47.8 per cent. higher than Lookers' in2003, being 2.8 per cent. divided by 1.9 per cent. and subtracting 1 andmultiplying by 100 per cent. (all numbers accurate to 1 decimal place). (l) Acquisition strategy In its announcement that it has completed the acquisition of six dealershipsfrom H.R. Owen on 28 February 2006, Ken Surgenor, the Chief Executive ofLookers, was quoted as saying "we are delighted to have acquired these highquality dealerships and we remain focussed on growing Lookers organically and byacquisition." (m) Return of value In the "Dividend and Future Dividend Policy" section of Lookers' auditedpreliminary results for the year ended 31 December 2005, the Lookers Boardstated that it intends to "initiate a more progressive dividend policy,increasing the total dividend payable by 15 per cent. per annum subject tomaintaining an appropriate dividend cover" with "a larger proportion of thedividend will be paid at the interim stage in successive years". The LookersBoard believes this "reinforces the Board's commitment to creating further valueand returning capital to shareholders" and states that it will send to LookersShareholders further proposals regarding how it intends to "create and returnvalue". (n) Market position Lookers' UK market position of number 5 is derived from page iv of SewellsInformation & Research publication titled "Who Owns Who" dated January 2006.This page lists Reg Vardy as the number 3 ranked company. Given that Reg Vardyhas been acquired by Pendragon, Lookers' stated rank of number 6 is now number5. (o) Liquidity Lookers Shares have had relatively low liquidity compared to Pendragon in thelast twelve months to 15 November 2005, being the last business day prior to theannouncement by Reg Vardy that it had received an approach from Pendragon. Theaverage liquidity for Lookers over the period from 16 November 2004 to 15November 2005 is 0.2% compared to 0.5% for Pendragon over the same period.Liquidity for a listed equity on a specific date is calculated using the volumeof shares traded on that day, as sourced from Datastream, divided by the totalnumber of shares outstanding on that day, as sourced from Datastream, andmultiplying by 100 per cent. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PDG.LLOOK.L