Wall Street applauds Lithia-DCH deal

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DETROIT -- Lithia Motors Inc.’s plans to buy DCH Auto Group were greeted with cheers in the stock market today as publicly traded Lithia’s share price jumped 13 percent, or $9.85, to close at an all-time high of $86.53. The shares closed at $76.68 on Friday.

The gains came on a tepid day on Wall Street when both the Dow Jones Industrial Average and S&P 500 rose less than 1 percent.

Lithia, of Medford, Ore., said Sunday it would pay about $340 million in cash and another $22.5 million in Lithia stock to acquire DCH, of South Amboy, N.J. The deal, expected to close in the fourth quarter, is expected to create an automotive retailer with annual revenue of $7 billion.

Lithia’s acquisition of DCH will help the company break into the Eastern United States.

“It is a very dramatic transition for Lithia to move to the East Coast,” said David Whiston, a market analyst at Morningstar. “It’s a whole new growth plan and a big change in strategy for Lithia.”

‘Better together’

Lithia CEO Bryan DeBoer told Automotive News the two companies were “already sharing best practices.”

He added: “We got along so well, we thought we may be better together than apart.”

Whiston said the two companies have good market strategies that should create strong advantages when merged together.

“As long as Lithia can successfully integrate [with DCH] and repeat their track record with other acquisitions, it will prove to be a great deal for them,” he said.

Before Lithia’s plans to acquire DCH, Lithia had focused on exclusive franchise dealerships in smaller markets, while DCH had focused on large metro markets. Lithia mainly sells domestic brands, led by Chrysler, while DCH mainly sells such import brands as Toyota and Honda.

Shareholder-return leader

Lithia has seen stunning stock-market growth. For each of the last four years, it has led its peer group of six publicly traded new-vehicle retailers in total shareholder return for the previous year, as measured by the Automotive News/PwC Shareholder Value Index.

“I have to tip my hat because it’s the smallest company that’s done the biggest deal,” said Alan Haig, a dealership broker. “I think Bryan [DeBoer] and his team and his strategy deserve a lot of credit because they’ve overcome a lot of the resistance people had for Lithia that it’s a small company with domestic brands.”

He said the acquisitions helped Lithia achieve the success it has today, as did the company’s location in certain markets in the United States that were not hit as hard by the recession.

West plus East

Lithia currently has 101 stores in 12 states, mainly in the Western United States, but also in the Midwest and Texas. DCH has 14 dealerships in Southern California and 13 in New York and New Jersey.

Haig said the next few years in the New York area should be positive, which will continue to help Lithia’s stock growth.

“Clearly California is a boom-and-bust culture, and it’s doing well again,” he said. “The Northeast is slowly recovering, but they’re not all the way back.”

Jamie LaReau contributed to this report.

You can reach Nora Naughton at nnaughton@crain.com.


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