Car firms reject merger plan

Car dealers Lookers and Reg Vardy tonight rejected a proposed three-way merger with rival Pendragon.

Nottingham-based Pendragon this morning shocked the City by revealing it was interested in bidding for both firms to create the undisputed king of the UK car dealership sector.

But Lookers and Vardy dismissed the idea and insisted on pressing ahead with their own deal – a proposed £492m (€718m) takeover of Vardy by Lookers.

In a statement to the stock market, Lookers said that Pendragon’s proposal “fundamentally undervalued” the company.

“The benefits of acquiring Reg Vardy are significant for Lookers shareholders and the Lookers board believes that these would be diluted as part of a three-way merger,” it said.

And in a separate statement, Vardy added: “The Reg Vardy board continues to recommend the acquisition of the company by Lookers.”

The comments came after Pendragon announced it made two approaches to Lookers after tabling a £450 million cash offer for Vardy last month. Pendragon said its overtures were rejected by Lookers on both occasions.

The stakes were raised 10 days ago when Lookers had a £492m offer for Vardy accepted.

Today, Pendragon said it was lifting the lid on its approaches to Lookers “in order to allow it freely to discuss” its all-share offer worth £214.4m (€313m) with Lookers shareholders.

In a statement, it added: “Pendragon believes that the synergies available from a three-way combination of Lookers, Reg Vardy and Pendragon should be considerable.”

Pendragon said it would offer Lookers shareholders 1.15 new shares for each Lookers share. Conditions attached to the proposal included Lookers scrapping its takeover of Vardy.

Even without accounting for potential cost savings, Pendragon believed a three-way merger would immediately enhance earnings compared with its current standalone prospects.

But executives were frustrated in their attempts to open talks before Lookers tabled its offer for Vardy.

Pendragon added that it intended to fulfil an agreement to buy the 16.6% stake in Reg Vardy held by the son of its founder and then vote against the acquisition by Lookers.

With many other directors prevented from voting in favour of Vardy being acquired by Lookers, the company added that it only needed investors holding 6.4% of shares to oppose the takeover deal for it to fail.

A combination of the three firms would be worth £1.36bn (€2bn) and turnover around £6bn (€8.7bn) a year, although Pendragon boss Trevor Finn said that would only equate to around 6% of the new car market.

hareholders should recognise the track record of Pendragon in successfully integrating acquisitions including Evans Halshaw in 2000 and CD Bramall two years ago, Mr Finn said.

Panmure Gordon analyst Oliver Wynne-James said a three-way merger looked good on paper but appeared to be unworkable at this stage.

He said: “Egos in these businesses are likely to be bruised and there are significant business model conflicts.”

Lookers shares surged 18% today and Pendragon leapt 11%, but Vardy fell 6% as investors took the view that Pendragon may not come back with a higher bid.