Lithia Motors raises bid for Pendragon car dealerships

Lithia Motors Inc. has significantly upped its offer to acquire the dealership and fleet businesses of Pendragon, amid bids from two rival publicly traded auto retailers.

In a Monday regulatory filing, Pendragon said its board and Lithia have agreed to "improved terms for their previously announced transaction."

Lithia said it will now pay $482 million, up from the initial offer of $350 million.

Pendragon said the new offer includes the 279.4 million shares that Lithia would have in a new dealership management system company. As part of the deal, Pendragon's DMS Pinewood is to 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.

Lithia said the combined value of the updated offer to Pendragon shareholders is equivalent to 35.4 pence, or 43 cents, per share. As part of its new offer, Lithia also has waived certain automaker consents as closing conditions and the parties said the deal could close in the fourth quarter.

"Our transaction provides considerable value and certainty for Pendragon shareholders while unlocking Pinewood's ability and massive potential as a standalone, pure-play SaaS [software-as-a-service] business," Lithia CEO Bryan DeBoer said in a statement. "We have a pathway to reach completion quickly, proven experience in successfully integrating businesses and great growth opportunities for the Pendragon employees. We are very excited about the strength of our strategic partnership and expanding the Pinewood business not just in the U.K. but around the world."

Lithia also said it has obtained "preliminary commitments from multiple major automotive retailers to contract and roll out the Pinewood dealer management systems to their locations, representing approximately 7,500 users" in the U.K., which is contingent on the transaction closing.

Pendragon, which has 160 retail locations in the U.K., previously had said it was required to hold a shareholders meeting Friday to approve or reject Lithia's proposal. However, in Monday's filing, Pendragon said a document known as a supplementary circular is expected to be sent to shareholders shortly. A Lithia spokesperson said once the supplementary circular is filed, the shareholders meeting would occur 16 days later.

"With the updated offer, we are more confident in our view that LAD will be the acquirer, but we will watch for more developments," Stephens Inc. analyst Daniel Imbro wrote in a Monday note to investors.

The Medford, Ore., retailer's updated offer is the latest chapter in the bid for Pendragon's business, which kicked into high gear on Sept. 18 when Lithia disclosed its plan.

In a regulatory filing last week, Pendragon said it received an unsolicited proposal from AutoNation Inc. to acquire the company for 32 pence, or 39 cents, per share in cash. Reuters valued the AutoNation offer at $544.2 million. Pendragon, which said it was considering that proposal, said AutoNation has until Oct. 24 to announce a "firm intention" to make an offer.

Two days after Lithia's deal was announced, Pendragon on Sept. 20 said it received a joint offer from Penske Automotive Group Inc., through its PAG International subsidiary, together with Pendragon shareholder Hedin Mobility Group, 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. Penske and Hedin have until Oct. 18 to make their firm offer.

A Penske Automotive spokesperson said Monday that the auto retailer had no comment.

Lithia ranks No. 1 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 271,596 new vehicles in 2022. Lithia's sales figures include dealerships outside the U.S.

Staff Reporter Gail Kachadourian Howe contributed to this report.