Pendragon says early merger talks with Lookers have ended

Responding to press speculation over the weekend, Pendragon said: "The company confirms that it held outline discussions with Lookers suggesting they might explore the potential benefits of a combination of the two businesses and how this could be attractive to both sets of shareholders.

"While Pendragon believed that such an exploration would have proved beneficial, these early discussions have now ceased."

At the weekend, Sky News reported that Pendragon had approached Lookers about a potential merger last month but that Lookers had rejected the approach.

Pendragon said it remains "well-positioned", having already taken significant steps to reshape the business and to cut costs both in advance, and as a result of the coronavirus pandemic, which has temporarily curtailed business activity.

Liberum questioned Pendragon’s statement about a merger being beneficial to both companies.

"Both companies are highly operationally and financially geared with pension deficits. Pendragon was loss-making in FY19 and Lookers barely profitable and is yet to publish its results due to an ongoing fraud investigation, as well as an FCA investigation," the broker said.

"Pendragon has a new CEO in place who is likely to focus on a stand-alone used car strategy. Lookers has a new CEO (and no CFO) that needs to focus on stabilising the business. With nearly 300 dealerships between them across a broad range of brands, optimising the portfolio would be a big task/distraction. The culture of the two businesses is very different and there is no obvious unifying strategy."

Liberum said cost reduction alone would not be a sufficient rationale at this point in the cycle.

At 0930 BST, Pendragon shares were down 5.5% at 7.73p and Lookers shares were 0.8% higher at 23.95p.