The battle for control of car dealer Reg Vardy took an unexpected turn yesterday when rebuffed bidder Pendragon said it wanted to tie up a £900m three-way merger with Vardy and its rival suitor Lookers.
Pendragon's move took the City by surprise, as it had been expected to either increase its 800p-a-share terms for Vardy or bow out of the bid battle. That would have left the way clear for Lookers, the smallest of the three companies, to press ahead with its ambitious £492m offer, which the Vardy board again recommended to its shareholders yesterday.
In a complex move, Pendragon proposed that not only should its initial £450m cash offer for Vardy go ahead, but also that it should take over Lookers in a share-swap deal, creating a company valued at £900m.
Pendragon chairman Sir Trevor Chinn also revealed that he had twice approached Lookers last month about such a merger but had been rebuffed. Sir Trevor decided to go public yesterday so that Lookers shareholders could consider the plans, which he said have "a clear commercial logic." Lookers again rejected Pendragon, saying such a merger "could lead to commercial disadvantage". It also said the share-swap terms "fundamentally undervalued" its prospects.
But Sir Trevor made it clear that Pendragon would try to block the Lookers bid. It would exercise its option to buy a 18.6% stake in Vardy, which is held largely by chief executive Sir Peter Vardy, and vote against the bid offer.
Pendragon is already the country's largest car dealer but, because of the highly fragmented nature of the industry, the three companies combined would still have only a 6% share of the new car market. Shares in Vardy tumbled 52.5p to 857.5p, reflecting disappointment that Pendragon has not raised its offer. Pendragon jumped 53.5p to 536p and Lookers added 92p to 601p.
The Pendragon proposals were dismissed by some analysts as too complex. Oliver Wynne-James at Panmure Gordon said: "It looks good on paper and profitable for advisers, but a three-way merger looks unworkable at this stage."
