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Pendragon sparks Reg Vardy bid war

Pendragon’s bid of 750p per share for Reg Vardy has this week been trumped by two rival bidders, both believed to be car retailers.

The two companies –names in the frame include Inchcape, Sytner parent United Auto Group, European Motor Holdings and Dutton Forshaw owner Lloyds TSB – could spark a bidding war for Vardy: the City is waiting for Pendragon to come back with an improved offer.

It’s unlikely that a venture capitalist has tabled a bid, unless it is in partnership with one of the plcs. “A venture capitalist would want to create a rival to Pendragon, which isn’t possible just by buying Reg Vardy,” says one analyst, who asked not to be named. “But they could in partnership with a large dealer.”

A successful bid by one of Pendragon’s closest rivals could see the group toppled from the AM100 No1 spot for the first time in seven years.

However, if Pendragon chief executive Trevor Finn pursues Reg Vardy, he would create a £5bn group with a market capitalization of £1bn and up to 350 dealerships. The purchase would also strengthen his negotiating muscle with its volume and niche carmaker partners.

Pendragon’s Vauxhall and Jaguar franchises would increase to 38 sites each, and its Land Rover portfolio would total 30. The addition of Vardy’s single Aston Martin dealership to Pendragon’s existing eight sites would give it almost half the UK network.

Whether Pendragon would pick up Vardy’s 15 Renault and five Volkswagen businesses – franchises it doesn’t currently hold – will depend on the carmakers. When Pendragon bought CD Bramall in 2004, VW Group refused to transfer the VW and Audi franchises. It’s expected to take up the same position again.

“There’s still a long way to go until Pendragon can be seen as a true super-dealer,” says one analyst at a major London investment bank. “If this goes ahead, it will give Pendragon around a 5% to 8% market share in the UK, which still means there’s a lot of scope for more consolidation.

A sale to Pendragon also has implications for businesses providing support services to Reg Vardy. News that the two groups were in talks sparked an impromptu meeting last month at Kerridge, whose dealer management system is used by Vardy’s 98 dealerships. Pendragon owns its own system, Pinewood, so is likely to replace Kerridge if the deal goes through.

One analyst told AM that this is a good opportunity for Sir Peter Vardy, 58, to exit motor retailing. He has a son working in the business, but he is not believed to be a future successor.

However, Vardy could re-enter with a new business, echoing the strategy of former CD Bramall chairman Tony Bramall. He sold to Pendragon for £230m in 2004 but, together with ex-Bramall chief executive Peter Jones, has since formed a new group, Bramall & Jones.

The analyst's view

Rob Golding, independent auto industry analyst, writes: “Investors see the Pendragon acquisition of Reg Vardy as at last creating a UK retailer of some significance in the car business.

“If it happens, its new car sales market share will be above 5% – a far cry from Tesco’s food market share of 30% but nevertheless the start of a dominant national brand.

“For the Vardy family, the 28% shareholding becomes a cash fortune of £118m, though few believe that Sir Peter Vardy will be anything other than devastated to lose his empire at the age of 58.

“The only UK dealer strong enough to bid against Pendragon is Inchcape, but it is more interested in piecemeal acquisitions.

“If the new approaches are from outside the sector, they could be from any of the major venture capitalist companies who thrive on big strategic ideas. CVC, for example, collected together Kwik-Fit (now sold on at double the money), the AA and Halfords. Its retained advisor on the sector is Sir Trevor Chinn, late of Lex Services and life president of the RAC.”

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