Lithia's CEO confident in its deal for Pendragon

Three top dealership groups are vying for U.K. auto retail giant Pendragon, but Lithia Motors CEO Bryan DeBoer indicated to BofA Securities last week that he believes his company, which was first to strike a deal with Pendragon, will win the bidding war.

DeBoer was confident Lithia "would be able to close the deal despite two competing bids, but also emphasized the importance of discipline," BofA Securities analyst John Murphy wrote to investors Thursday, Sept. 28. DeBoer spoke with the firm Wednesday, the day after AutoNation submitted a nonbinding preliminary proposal for Pendragon. AutoNation's bid followed two joint bids — including one rejected and one that remains under consideration — from Penske Automotive Group and Sweden's Hedin Mobility Group.

"At this time, the only legally binding offer Pendragon has received is from Lithia Motors," Lithia spokesperson Michelle Watson-Schwartz told Automotive News in an email.

Pendragon, which has 160 retail locations in the U.K., said it is required to hold a shareholders meeting Friday, Oct. 6, to approve or reject Lithia's proposal.

"To move forward, the shareholder vote on Oct. 6 will require 51 percent or more," Lithia's Watson-Schwartz said.

Lithia on Sept. 18 said it planned to buy Pendragon's dealership and fleet businesses in a $350 million deal. As part of that deal, Pinewood, Pendragon's dealership management system, would be transformed into a standalone company, Pinewood Technologies. Lithia would gain about a one-sixth ownership stake in that entity. Lithia and Pinewood plan to form a joint venture to bring a DMS to North America.

In a regulatory filing last week, Pendragon said it received an unsolicited proposal from AutoNation to acquire the company for 32 pence, or 39 cents, per share in cash. Reuters valued the AutoNation offer at $544.2 million.

Pendragon, in the filing, said its board will consider the proposal and "provide an update in due course." It said AutoNation has until Oct. 24 to announce a "firm intention" to make an offer for the company.

AutoNation, also in a Tuesday regulatory filing, said there can be no certainty as to whether it will make a binding offer for Pendragon.

AutoNation said it will make a "further announcement if and when appropriate."

Pendragon is led by CEO Bill Berman, the former AutoNation COO. Under Lithia's proposal, Berman would stay on as CEO of Pinewood.

Just two days after Lithia's deal was announced, Pendragon said it received a joint offer from Penske, through its PAG International subsidiary, together with Pendragon shareholder Hedin Mobility, which owns about a 28 percent stake in Pendragon. Pendragon rejected that deal.

On Sept. 22, Penske and Hedin submitted a revised offer, upping the price to 39 cents per share. Reuters valued that second bid at about $548 million. Pendragon said it is considering that proposal. And Penske and Hedin have until Oct. 18 to make their firm offer.

Rob Kurnick Jr., president of Penske Automotive Group, last week declined to discuss details of Penske's pursuit of Pendragon.

Some, such as analyst Steve Young, managing director of U.K. retail automotive research firm ICDP, wonder if public auto retailer Group 1 Automotive, which also has U.K. dealerships, will put in a bid. Group 1 did not respond to a request for comment.

Young said it's possible Lithia may increase its bid to match the others and if so he thinks "the shareholders will vote in favor and this will still represent good value for Lithia given current exchange rates," he wrote in an email to Automotive News.

He said higher offers also could come from Penske-Hedin or AutoNation ahead of Friday's shareholder vote.

"This becomes the effective deadline by which point they will either have had to muddy the waters sufficiently that the shareholder meeting is deferred, or put in a sufficiently higher offer that the board feels obliged to drop their recommendation of the asset sale and back one of the other bidders," he wrote.

AutoNation, of Fort Lauderdale, Fla., ranks No. 2 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 229,971 new vehicles in 2022. Lithia is No. 1 on that list, and Penske is No. 3.

Mark Hollmer, Paige Hodder and Reuters contributed to this report.