European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>The game is on with the sweetened offer from Lithia, valued at 35.4p/share (24.5p divi + stake in Pinewood). <a href="https://www.smartkarma.com/entities/pendragon-plc" target="_blank" data-smartkarma-citation="entities:22080:1" rel="noopener">Pendragon PLC (PDG LN)</a>'s shares are trading just below, at 35.2p.</li>
<li>It is now the turn of either Hedin or AutoNation to raise their offers. 32p/share seems a fair value for the standalone business. Synergies could be worth up to 10.54p/share.</li>
<li>Assuming a bidder distributes 60% of synergies to Pendragon shareholders, a potential offer price of 38.3p/share, in cash, 8% above Lithia's offer, could still be value enhancing.</li>
</ul>


The game is on with the sweetened offer from Lithia, valued at 35.4p/share (24.5p divi + stake in Pinewood). Pendragon PLC (PDG LN)'s shares are trading just below, at 35.2p.
It is now the turn of either Hedin or AutoNation to raise their offers. 32p/share seems a fair value for the standalone business. Synergies could be worth up to 10.54p/share.
Assuming a bidder distributes 60% of synergies to Pendragon shareholders, a potential offer price of 38.3p/share, in cash, 8% above Lithia's offer, could still be value enhancing.


<ul>
<li>My comparables derived valuation of <a href="https://www.smartkarma.com/entities/pendragon-plc" target="_blank" data-smartkarma-citation="entities:22080:1" rel="noopener">Pendragon PLC (PDG LN)</a> is 32p/share, above the value of Lithia's "package" and spot-on Hedin's unsolicited &amp; preliminary revised offer (well above its initial lowball offer).</li>
<li>The market seems skeptical about the future prospects of Pinewood. Putting it on a 13.3x multiple, the value of the business would still be c. 11p/share, hardly a game-changer.</li>
<li>The revised Hedin's offer is 17% above Lithia's, with no execution risk (Hedin backing off again seems less likely), and probably enough to win Board's recommendation. Gross spread, 5.6%. Long.</li>
</ul>


My comparables derived valuation of Pendragon PLC (PDG LN) is 32p/share, above the value of Lithia's "package" and spot-on Hedin's unsolicited &amp; preliminary revised offer (well above its initial lowball offer).
The market seems skeptical about the future prospects of Pinewood. Putting it on a 13.3x multiple, the value of the business would still be c. 11p/share, hardly a game-changer.
The revised Hedin's offer is 17% above Lithia's, with no execution risk (Hedin backing off again seems less likely), and probably enough to win Board's recommendation. Gross spread, 5.6%. Long.


<ul>
<li>The deal looked dead in the water during a week until, on 27 July, Global Auto Holdings raised its offer for <a href="https://www.smartkarma.com/entities/lookers-plc" target="_blank" data-smartkarma-citation="entities:22031:1" rel="noopener">Lookers PLC (LOOK LN)</a> by 8%, to 130p/share (46.6% premium).</li>
<li>The increased offer will now be carried out via takeover, and represents an implied EV of £968 million, 6.1x EV/Fwd NTM EBITDA and 9x Fwd P/E (on latest Consensus figures).</li>
<li>Considering the number of failed deals in the sector, I believe the offer looks very decent and the deal should now close. Spread is 5.2%/23.7% (gross /annualised). Long. </li>
</ul>


The deal looked dead in the water during a week until, on 27 July, Global Auto Holdings raised its offer for Lookers PLC (LOOK LN) by 8%, to 130p/share (46.6% premium).
The increased offer will now be carried out via takeover, and represents an implied EV of £968 million, 6.1x EV/Fwd NTM EBITDA and 9x Fwd P/E (on latest Consensus figures).
Considering the number of failed deals in the sector, I believe the offer looks very decent and the deal should now close. Spread is 5.2%/23.7% (gross /annualised). Long. 


Alpha Auto Group/​​Lookers: Sharp Turn

<ul>
<li>Lookers disclosed that Cinch (largest shareholder with 19.52% stake) plans to vote against the scheme. The shares have dropped to halfway between the pre-offer price and Alpha Auto's offer.</li>
<li>The shares are pricing a 45% probability of deal completion. This sector has a track record of failed deals, so it is understandable that investors are spooked.</li>
<li>Top Lookers shareholders are keen on selling and an offer from Lithia could well happen. At around 103p I'd be long, as I consider the risk reward is balanced. </li>
</ul>


Lookers disclosed that Cinch (largest shareholder with 19.52% stake) plans to vote against the scheme. The shares have dropped to halfway between the pre-offer price and Alpha Auto's offer.
The shares are pricing a 45% probability of deal completion. This sector has a track record of failed deals, so it is understandable that investors are spooked.
Top Lookers shareholders are keen on selling and an offer from Lithia could well happen. At around 103p I'd be long, as I consider the risk reward is balanced. 


Alpha Auto Group/​Lookers: From Done Deal to Uncertain Situation

<ul>
<li>On 20 November, the Daily Telegraph reported that Pendragon intends to back Hedin's 29p approach (4.2x EV/Fwd EBITDA). On 21 November, the Panel granted a PUSU extension till 9 December.</li>
<li>My fair value estimate is 39p (WACC 9%, 2.4% perpetual growth), 34% above the prospective bid, and 5.0x EV/Fwd EBITDA and 11.8x Fwd P/E (vs. Inchcape's 6.0x and 11.8x respectively).</li>
<li>The shares are trading at 2.4% gross spread to the prospective offer. Risk/reward seems favorable as I believe there is the possibility of a higher offer. <strong>Long.</strong>
</li>
</ul>


On 20 November, the Daily Telegraph reported that Pendragon intends to back Hedin's 29p approach (4.2x EV/Fwd EBITDA). On 21 November, the Panel granted a PUSU extension till 9 December.
My fair value estimate is 39p (WACC 9%, 2.4% perpetual growth), 34% above the prospective bid, and 5.0x EV/Fwd EBITDA and 11.8x Fwd P/E (vs. Inchcape's 6.0x and 11.8x respectively).
The shares are trading at 2.4% gross spread to the prospective offer. Risk/reward seems favorable as I believe there is the possibility of a higher offer. Long.



Hedin Group/​Pendragon: Closer To Clinch a Deal

United Kingdom

Pendragon PLC sells new and used vehicles and provides contract hiring and after sales services.  The Company operates approximately 150 franchises that sell vehicles including Aston Martin, BMW, Daihatsu, Ferrari, Ford, Honda,Isuzu, Jaguar, Land Rover, Lexus, Mazda, Mercedes-Benz, Nissan, Rolls-Royce, Porsche, Peugeot, Rover, Saab, Toyota, Volkswagen & Audi and Volvo.

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Pendragon PLC (PDG LN)

Proposals, Sweetened Offers & Synergies

The game is on with the sweetened offer from Lithia, valued at 35.4p/share (24.5p divi + stake in Pinewood). Pendragon's shares are trading just...

Jesus Rodriguez Aguilar

Hedin and Lithia Struggle for Pendragon

On 22 September, Hedin submitted a revised offer at 32p (4.1x EV/NTM Fwd EBITDA, in line with the median of UK comparables). If Lithia wants to...

Jesus Rodriguez Aguilar

Alpha Auto Group/Lookers: Sharp Turn

After the deal looked dead in the water, the board of Bidco and the board of Lookers announced that they had agreed on an increased recommended...

Jesus Rodriguez Aguilar

Alpha Auto Group/Lookers: From Done Deal to Uncertain Situation

A puzzling situation: on the one hand, Cinch (19.5%) believes the offer undervalues Lookers, while another large shareholder, J O Hambro has...

Jesus Rodriguez Aguilar

Hedin Group/Pendragon: Closer To Clinch a Deal

On 20 November, the Daily Telegraph reported that Pendragon intends to back Hedin's 29p approach (4.2x EV/Fwd EBITDA). On 21 November, the Panel...

Jesus Rodriguez Aguilar

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52-week Range

Market Cap (USDm)

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Proposals, Sweetened Offers & Synergies

The game is on with the sweetened offer from Lithia, valued at 35.4p/share (24.5p divi + stake in Pinewood). Pendragon's shares are trading just...

Jesus Rodriguez Aguilar

Hedin and Lithia Struggle for Pendragon

On 22 September, Hedin submitted a revised offer at 32p (4.1x EV/NTM Fwd EBITDA, in line with the median of UK comparables). If Lithia wants to...

Jesus Rodriguez Aguilar

Alpha Auto Group/​​Lookers: Sharp Turn

After the deal looked dead in the water, the board of Bidco and the board of Lookers announced that they had agreed on an increased recommended...

Jesus Rodriguez Aguilar

Alpha Auto Group/​Lookers: From Done Deal to Uncertain Situation

A puzzling situation: on the one hand, Cinch (19.5%) believes the offer undervalues Lookers, while another large shareholder, J O Hambro has...

Jesus Rodriguez Aguilar

Hedin Group/​Pendragon: Closer To Clinch a Deal

On 20 November, the Daily Telegraph reported that Pendragon intends to back Hedin's 29p approach (4.2x EV/Fwd EBITDA). On 21 November, the Panel...

Jesus Rodriguez Aguilar

Alpha Auto Group/Lookers: Sharp Turn

Alpha Auto Group/Lookers: From Done Deal to Uncertain Situation

Hedin Group/Pendragon: Closer To Clinch a Deal