The Boards of Directors of Pendragon and of Lithia Motors, Inc. (NYSE: LAD), one of the largest automotive retailers in North America, are pleased to announce they have agreed the terms of a proposed sale by Pendragon Group Holdings Limited ("PGHL") of the entire issued share capital of Pendragon NewCo 2 Limited ("Pendragon NewCo") which will hold, either directly or indirectly through its wholly-owned subsidiaries, the Company's entire UK motor business and leasing business (the "Disposal"), to Lithia UK Holding Limited (the "Purchaser" or "Lithia"), a wholly-owned subsidiary of Lithia Motors, Inc. for a gross aggregate consideration of 250 million (subject to certain financial adjustments) (the "Consideration").
Pendragon and Lithia Motors, Inc. have also agreed the terms of astrategic partnership with Lithia, including the rollout of Pinewood, the Company's dealer management software ("DMS") business, to Lithia's existing 50 UK sites and the creation of a joint venture to accelerate Pinewood's entry into the highly attractive North American DMS market, underpinned by a subscription by Lithia for 279,388,880 new Ordinary Shares in the Company (the "Subscription Shares") for an aggregate subscription price of 30 million (the "Subscription Price") (the "Strategic Partnership" and, together with the Disposal, the "Transaction").
As part of the Transaction, Pendragon's Pinewood division, which operates the Company's proprietary DMS business, will become a standalone entity, retaining Pendragon's existing listing on the London Stock Exchange and creating a pure play Software as a Service ("SaaS") business with an accelerated growth plan.
The Transaction is the value-maximising conclusion of the strategic review announced by Pendragon last year and the Board believes that it will deliver an attractive cash dividend to Shareholders of c.240 million.
In summary, the Transaction provides Shareholders with a total value per share comprising: (i) 16.5 pence in cash, to be received by way of a dividend to be paid post completion of the Transaction (the "Transaction Dividend"); (ii) a retained c.83.3 per cent. ownership in the continuing Pendragon business (including Pinewood) (the "Continuing Group"), valued initially at c.10.3 pence on a fully-diluted basis; and (iii) an indirect interest in the North American joint venture valued initially at c.0.6 pence.
Accordingly, in aggregate, Pendragon shareholders will initially receive (either directly through the Transaction Dividend or via their retained interest in Pendragon) the equivalent of approximately 27.4 pence per share with further significant upside expected from the Strategic Partnership. This compares to a share price of c.18.5p as at the close of business on 15 September 2023, being the Latest Practicable Date.
Transaction Summary Disposal of UK Motor and PVM * UK motor business, consisting of Evans Halshaw, Stratstone and Car Store, and Pendragon Vehicle Management ("PVM"), Pendragon's leasing business, will be sold to Lithia at an attractive valuation: o Total cash consideration of 280 million (subject to adjustments), which includes a 30 million subscription for shares in Pendragon, which following completion of the Disposal, will operate the standalone Pinewood business as the Continuing Group.
o Lithia to assume all existing Pendragon net bank debt and pension obligations, leaving the Continuing Group with no indebtedness, legacy pension liabilities, or retained liabilities from the UK motor business and leasing business.
* The Disposal is subject to customary conditions, including Pendragon shareholder approval.
* After costs and investment in the Strategic Partnership, the Board intends to return c.240 million, equivalent to 16.5 pence per share, to Pendragon shareholders (excluding Lithia in respect of its Subscription Shares).
Transition to Pinewood Technologies plc * Pendragon will remain listed and change its name to Pinewood Technologies plc.
* Business to be led by Bill Berman as CEO, and Oliver Mann as CFO, supported by a highly experienced management team.
* Separation from Pendragon motor division provides Pinewood with an opportunity to unlock further scale among UK retailers.
* The Transaction recapitalises Pinewood to increase operating flexibility.
* FY27 target for underlying EBITDA of Pinewood Technologies plc ("Pinewood Tech") of 27 million from the existing business, with further significant upside expected to be delivered through the Strategic Partnership.
Strategic Partnership with Lithia * Lithia is one of the largest automotive retailers in North Americaand the Board believes it is the ideal partner to unlock and accelerate Pinewood's expansion into the North American market. The Strategic Partnership will: o Rollout Pinewood's software across Lithia's existing 50 UK locations, adding c.2,500 users within the next 12 months.
- Accelerate entry into the highly attractive North American market - estimated to be worth more than 2.6 billion per year. The Strategic Partnership will be capitalised by Lithia and Pendragon investing 10 million each at the outset.
- Facilitate product co-development with Lithia that will add further capability and offer new routes to growth in key existing markets.
- Target Lithia's c.17,500 users across 296 locations in the medium-term alongside new third party customers.
* The Strategic Partnership is underpinned by a 30 million subscription by Lithia for the Subscription Shares such that, immediately following completion of the Transaction, Lithia will own 16.67 per cent. of Pinewood Technologies plc. As such, Lithia's investment implies a day-one valuation of 180 million for the equity of Pendragon. In addition, Lithia intends to acquire further Pendragon shares from certain LTIP participants who elect to sell the Ordinary Shares acquired on vesting of the LTIP awards to Lithia resulting in its ownership of Pendragon increasing to up to 19.84 per cent. of Pendragon. As part of this investment, Lithia will have the right to appoint two non-executive directors to the seven-strong Pendragon Board post completion.
Materially Enhanced Pinewood Growth Opportunity Today, Pinewood is a leading cloud-based DMS provider with over 30,000 users, having received strong original equipment manufacturer ("OEM") support through partnerships with BMW and Renault, and with integration with over 50 manufacturers. Pinewood Tech's financial profile is highly attractive, with c.90 per cent. recurring revenue, healthy EBITDA margin of c.60 per cent. and high user loyalty. Lithia's investment implies a day-one value of Pinewood Tech of approximately 10.3 pence per share on a fully-diluted basis. The Board believes that the growth prospects for Pinewood Tech will be materially enhanced as a result of becoming a standalone, pure-play SaaS business as well as through the Strategic Partnership, centred on Pinewood's three core pillars for long-term growth: 1. Product Innovation: expand digital capabilities to existing customers and lead innovation of DMS product globally, with the technology developed for the US market in partnership with Lithia 2. User Growth in Existing Territories: grow with major retail players in the UK post separation from Pendragon and capitalise on opportunity in Asia Pacific, Middle East and Europe 3. Access to North American Market: scale in the USA and Canada by leveraging relationship with Lithia to develop product for North America The North American market is estimated to be valued at more than 2.6 billion, out of a global automotive DMS market estimated to be worth approximately 3.8 billion. The Board believes that Lithia is the ideal partner to accelerate Pinewood's expansion into this market given its size and familiarity with this technology. Lithia currently spends approximately $100 million per year on its DMS stack and is one of the largest automotive retailers in the US with 296 dealerships. The combined capabilities of Pinewood and Lithia ideally position the joint venture to target the rest of the 21,000 new car automotive dealers in the North American market as potential customers.
The Board is targeting user growth of c.16,000 to total approximately 48,000 by FY27 with an associated target of 27 million EBITDA by FY27 from existing businesses, compared to approximately 15 million for FY22, even before the impact of the North American joint venture.
Ian Filby, Non-Executive Chairman of Pendragon, said:"Pendragon has made strong progress executing its strategy in recent years and the business has been repositioned successfully as a digitally-enabled automotive retailer. Today's announcement follows an extensive strategic review undertaken by the Board of Pendragon to maximise value for our stakeholders. The proposed transaction provides shareholders with an immediate dividend close to the Company's undisturbed market capitalisation as well as ongoing ownership in an exciting technology company with improved growth prospects." Bill Berman, Chief Executive of Pendragon commented:"Pendragon has built one of the UK's leading automotive retailing businesses, underpinned by a market leading dealer management system, the quality of our people, long-standing relationships with OEMs and excellent execution for customers. The Pendragon Board considers Lithia to be perfectly placed to build on this progress. The launch of Pinewood as a standalone company is a unique and exciting opportunity to create a best-in-class product for customers, which we can market globally and drive substantial value for our shareholders and in Lithia we have the perfect partner to help accelerate Pinewood's push into the hugely attractive North American DMS market." Bryan DeBoer, Chief Executive of Lithia commented: "The strategic partnership with Pinewood Technologies and acquisition of Pendragon's UK motor and vehicle management divisions is a massive step in delivering on our longer-term growth strategy. We are excited about the great potential in Pinewood's offering and envision our strategic partnership to further expand this SaaS business globally. Additionally, the proposed acquisition presents a highly synergistic growth opportunity with our existing UK presence with Jardine Motors Group; provides a new adjacency with PVM; and expands our brand and geographic footprint while serving to further strengthen our existing OEM relationships." The Directors who hold interests in Ordinary Shares have each irrevocably undertaken (or have confirmed to the Company and the Sponsor that they will irrevocably undertake) to vote at the General Meeting in favour of the Resolution in respect of the Ordinary Shares to which they are beneficially entitled (representing in aggregate approximately 1.0 per cent. of the entire issued share capital of the Company as at the Latest Practicable Date).
In addition, Shareholders who hold interests in Ordinary Shares representing, in aggregate, approximately 26.5 per cent. of the entire issued share capital of the Company as at the Latest Practicable Date have each irrevocably undertaken (or have confirmed to the Company and the Sponsor that they will irrevocably undertake) to vote at the General Meeting in favour of the Resolution in respect of the Ordinary Shares to which they are beneficially entitled. The Shareholders comprise Schroder Investment Management Limited, Briarwood Capital Partners LP, Hosking Partners LLP, Farringdon Netherlands BV, Huntington Management LLC, and Sir Nigel Rudd.
Pendragon will report its FY23 interim results on 27 September 2023 and intends to hold a Pinewood Technologies plc Capital Markets Day at a later date.
Transaction Timetable
In accordance with the Listing Rules, due to the size of the Transaction in relation to the size of the Company, the Transaction constitutes a Class 1 transaction (as defined in the Listing Rules) and completion is therefore conditional upon, amongst other things, the approval of Shareholders of the Resolution at the General Meeting. In addition, the approval of Shareholders of the Resolution at the General Meeting is required under Listing Rule 9.5.10 R to authorise the issue of the Subscription Shares at a price per Subscription Share which exceeds a discount of 10 per cent. of middle market price of the Ordinary Shares at the Latest Practicable Date. Accordingly, a Circular is expected to be sent to Shareholders shortly, containing further details of the Transaction, the Board's recommendation and the notice convening the General Meeting at which Shareholders will be asked to approve the Transaction and related matters. Subject to satisfaction of the conditions to the Transaction, completion is expected to occur in Q4 2023. A separate announcement will be released on publication of the Circular, setting out a detailed timetable for the General Meeting and Transaction Completion.
Enquiries:
Jefferies International Limited (Sponsor, Financial Adviser and Joint Corporate Broker) +44 (0) 20 7029 8000
Philip Noblet James Thomlinson Thomas Bective Jordan Cameron Berenberg (Joint Corporate Broker) + 44 (0) 20 3207 7800
Ben Wright Headland Consultancy (PR & Communications) +44 (0) 20 3805 4822
Henry Wallers Jack Gault
Marine Godard Consultant, Strategic Communications FTI Consulting +447977817096
M Marine.godard@fticonsulting.com 200 Aldersgate St London, EC1A 4HD www.fticonsulting.com
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LITHIA MOTORS, INC. 
