Penske-Hedin bid for Pendragon rejected after Lithia acquisition announcement

Penske Automotive Group on Wednesday said its PAG International subsidiary, together with Sweden's Hedin Mobility Group, submitted a cash offer to buy U.K. auto retail giant Pendragon, just two days after rival dealership group Lithia Motors Inc. announced its plan to purchase most of the same company for $350 million.

Pendragon in a Wednesday regulatory filing said its board considered the proposal, but concluded that it "fundamentally undervalues the company and is therefore not in the best interests of shareholders or other stakeholders" and rejected the Penske-Hedin bid.

Reuters valued the bid price of 28 pence (35 cents) per share at about $486 million.

Pendragon added that the board is "excited about the future prospects for Pendragon as a result of the transaction announced with Lithia Motors."

Lithia declined to comment Wednesday.

Lithia's plan announced Monday includes buying Pendragon's 160 retail locations in the U.K. Most of those are Stratsone or Evans Halshaw-branded new-vehicle stores. It also includes buying Pendragon Vehicle Management, a U.K. vehicle fleet management platform of 15,000 to 20,000 cars.

Pinewood, Pendragon's dealership management system, is to be transformed into a standalone software company, Pinewood Technologies, as part of the Lithia deal. 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.

Penske, also in a Wednesday regulatory filing, said its and Hedin's offer was a preliminary proposal to jointly acquire the shares of Pendragon that Hedin doesn't already own. Hedin owns about a 28 percent stake in Pendragon, Reuters reported.

"If you look at Pendragon, it's one of the U.K.'s largest retailers and we are the largest retailer in the U.K. right now from an automotive standpoint," Penske spokesperson Anthony Pordon told Automotive News. "So we thought by looking at that and looking at our business, there were opportunities for us to grow in the marketplace and take advantage of any scale we have in the market."

Pordon said he could not comment on whether Penske and Hedin would submit another offer.

Pendragon's regulatory filing said Hedin and Penske are required by 5 p.m. Oct. 18 to either announce "a firm intention to make an offer" for the company or "that it does not intend to make an offer." The deadline may be extended, Pendragon noted.

Lithia CEO Bryan DeBoer told Automotive News this week that his company's deal requires Pendragon's shareholder approval. The vote should happen over the next couple of weeks, DeBoer noted. This week, Lithia said it expected the deal to close in the fourth quarter of 2023 or first quarter of 2024.

Penske has 189 new-car dealerships outside North America, most of which are in the U.K. Lithia has 40 U.K. stores, most of which are from its March purchase of Jardine Motors Group.

Last year, Reuters reported that Hedin made a cash offer of 29 pence (36 cents) per share, or about $429.67 million at the time.

Steve Young, managing director of ICDP, an European research and consultancy business in the U.K., told Automotive News in an email that it appears Hedin didn't have the firepower to do the deal alone.

"If the bid succeeded, not sure how they [Hedin and Penske] would proceed afterwards — perhaps divide Pendragon up and go their separate ways,?" Young wrote.

The joint offer from Hedin and Penske is in line with Hedin's bid from last year, Young noted.

Hedin appears to have played a role in Lithia backing away from a possible deal for Pendragon last year.

In August 2022, Pendragon in a regulatory filing said a "large international corporate" entity presented "a board-approved nonbinding offer" for the dealership group that was later withdrawn. The bid was valued at $558.35 million at the time, according to a Reuters report.

A Sky News report named Lithia as the unidentified bidder.

That proposal to buy Pendragon was contingent on receiving irrevocable commitments from each of the company's five major shareholders, the U.K. retailer said in its filing then. However, Pendragon said it was unable to engage with one of the shareholders, which Sky News identified as Hedin.

DeBoer confirmed this week that Lithia had discussions then with Pendragon, adding that his company backed away.

Young said he thinks the Pendragon-Lithia deal could go through.

"Given that the asset sale agreed with Lithia and the other institutional investors holding over 30 percent have indicated acceptance, I think the original Lithia bid and spinoff of the Pinewood business still stands a good chance of success," Young wrote.

Penske, of Bloomfield Hills, Mich., ranks No. 3 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 185,831 new vehicles in 2022. Lithia ranks No. 1 on that same list, retailing 271,596 new vehicles last year.

— Reuters contributed to this report.