Asbury Automotive Group has terminated its $1 billion purchase of most of the luxury Park Place Dealerships in Texas days before the deal was scheduled to close.
Asbury, in a regulatory filing, said it notified the sellers Tuesday that it was ending its transaction agreements and would pay $10 million in damages. It did not specifically give a reason for the termination but said in the filing that it has borrowed $237 million from a revolving credit line and $110 million from its used-vehicle floorplan loan.
"The company increased its borrowing as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak," Asbury said in the filing.
The Asbury-Park Place deal was expected to be one of the largest buy-sell deals in at least a decade. Asbury announced in December that it would buy 10 luxury Park Place stores in Texas with 17 new-vehicle franchises in the Dallas and Fort Worth markets.
“We will continue to do what we have done best for the past 33 years,” Ken Schnitzer, founder and chairman of Park Place Dealerships, said in a statement Wednesday. “Now more than ever, we remain committed to creating exceptional experiences for our clients, relying on the talent within our organization, and most importantly, keeping everyone safe.”
Asbury’s purchase also would have included the Park Place brand, a collision shop in Dallas and its vehicle subscription business Park Place Select.
“Our members continue to show resilience and compassion during this difficult time and we will overcome the challenges we are experiencing as a team,” Schnitzer said in a statement.
Asbury declined to comment beyond its regulatory filing.
On March 16, in a regulatory filing, Asbury said it was exploring alternatives related to its deal with Park Place and said terminating the transaction would cost the company about $30 million in fees and expenses.
Asbury had said the deal was scheduled to close by the end of March.
Too much uncertainty
Ryan Kerrigan, managing director of Kerrigan Advisors, a sell-side company in Irvine, Calif., said Tuesday there was uncertainty around whether Asbury would close the deal. Kerrigan cited Asbury's significant drop in stock price over the past few weeks and its lower market cap, and the impact to the Texas economy amid lower oil prices as reasons Asbury might reconsider the purchase.
"The view of the economy has just changed so dramatically and there's tons of uncertainty, so it's hard to imagine that they'd be comfortable closing at the terms they agreed to last year," Kerrigan told Automotive News.
Asbury shares closed Wednesday's trading up 9.6 percent to $58.67 after rising 17 percent during the record day on Wall Street on Tuesday. But the company stock as of Tuesday still was down 42.5 percent in three weeks and from its closing price of $93.03 on March 2.
Kerrigan said Asbury, the seventh-largest new-vehicle retailer in the U.S., and Park Place could have postponed the deal for a few months amid the coronavirus outbreak, or could have worked to negotiate a new deal.
“The decision to terminate the acquisition of Park Place Dealerships is based on the near-term macroeconomic uncertainty brought about by COVID-19 and the difficulty embedded in finalizing a transaction, which would have required the travel of multiple parties,” Rick Nelson, an analyst with Stephens Inc., wrote in a note to investors on Wednesday. “Focus has shifted to managing current operations in light of a challenging backdrop.”
Nelson said in the note that Asbury has “not ruled out” the possibility to revisit the transaction with Park Place later, but that any negotiations would start new.
Asbury said in the filing Wednesday that in the fourth quarter it recorded $1.7 million in expenses related to the transaction and expects to have $5.7 million of fees, accrued interest and other expenses in the first quarter connected to terminating the deal. It also had another $19.2 million in premium, fees and expenses related to redeeming $600 million of unsubordinated notes earlier this month to help pay for the transaction.
Jacqueline Charniga contributed to this story.