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Pendragon/Lex: a tale of two Trevors

The swoop for 32 Lex dealerships and four bodyshops was a Trevor Finn classic: buy while the market is down and your rivals are least expecting it.

A rival said Mr Finn “had probably bought a bargain” and it could make life a lot more difficult for those trying to compete with Pendragon, now clearly established as the UK's largest car retailer.

But Pendragon shares have failed to move off the bottom of the market and the group is heavily in debt. It has so far failed to demonstrate any financial benefit from the Finn strategy of “greater efficiencies from increased scale with key manufacturers”. Mr Finn says the “market has moved against us” and estimated the downturn in the final quarter of last year cost Pendragon £60m of turnover which took £7.5m “straight off the bottom line”. He points to the costs involved in “assembling a business”, particularly the investment in greenfield sites, for the failure to match turnover growth with profit and believes he will be “well positioned for growth when the trading environment recovers”.

Pendragon now owes £170m against a market capitalisation of about £62m but Mr Finn said its gearing was lower than it had been following last year's Evans Halshaw acquisition. He expected to pay back around £70m within “the next 12 to 18 months”.

“Integration of the new businesses will be a lot easier than it was with Evans Halshaw,” he said. “There are fewer manufacturers involved and we already have an infrastructure running with all those concerned.”

Pendragon has been reorganised into 'brand-focused' teams in the past 18 months and Mr Finn described the effect on each brand as minimal.

Funding for the purchase has come principally from the same three banks which financed the Evans Halshaw takeover and it has not affected the long term syndicated loan which Pendragon has with US investors.

“We borrowed £80m to buy Evans Halshaw and we paid £75m back last year,” said Mr Finn. “I find people are quite comfortable about lending you money again if you pay it back on time.”

When the deal is completed at the end of the month, Pendragon will be the dominant player in several volume and prestige franchises. Ford has a 49% stake in the group's 30 Ford dealerships but Pendragon will also own 24 Volvo; 16 Jaguar; 16 Vauxhall; 15 Fiat and 13 Land Rover outlets. It will also be relatively strong in Porsche with nine of the brand's 32 franchise points.

Mr Finn rejects suggestions he is moving fast to disguise the underlying weakness of his company. “There is so much change in this industry that to do nothing is much more dangerous,” he said.

“By next year, Pendragon will not be the same business as it is now, nor will it be in 2002. If you are running the same business now as you were three years ago, you're probably going out of business.”

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