Shares in automotive retailer Lookers (LOOK) revved up 34% to 118.5p after the company agreed a £465 million, all-cash takeover by Toronto-based car dealership group Alpha Auto.

Pitched at 120p per share, the offer price is a 35% premium to Lookers’ closing share price on Monday and the deal sees Lookers become the latest quoted car retailer to be taken over, following on from Marshall Motor and Cambria Automobiles and with Pendragon (PDG) having also drawn bid interest.

Cinch, Webuyanycar and Marshall Motor owner Constellation Automotive has a 20% share in Lookers and has agreed to sell its holding as part of the deal.

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WHY IS LOOKERS SELLING?

The Lookers board, which will remain in situ, is recommending that shareholders accept the offer from Alpha Auto, a privately-owned operator of 15 large scale new vehicle dealerships across Canada and the US.

Lookers’ CEO Mark Raban said the offer reflects ‘the transformational progress that has been made in recent years. We have harnessed our strong market position, enhanced our brand relationships, and executed well against our six strategic priorities.’

Raban is ‘excited about the combination’ with Alpha Auto, as it will create a business of ‘greater scale, and bring together two successful businesses with complementary OEM relationships, and a strong platform to support future growth in the UK.’

No stranger to takeover interest, having fended off a hostile bid from rival Pendragon at the height of the pandemic, Lookers has staged an impressive recovery with Raban at the wheel.

He has restored investor confidence by putting accounting issues in the rear-view mirror, and presided over a series of profit upgrades and a return to paying dividends.

Despite headwinds from vehicle supply disruption, inflation and rising interest rates, Lookers delivered a better than expected performance in 2022.

Sales rose from £4.05 billion to £4.3 billion and Lookers churned out an underlying profit before tax of £82.7 million, driven by new and used vehicle market outperformance and cost control.

A ‘CRUCIAL PILLAR’

For Alpha Auto, Lookers brings ‘an attractive opportunity to enter the UK market through the acquisition of one of the leading integrated automotive retail and service groups in the UK with significant competitive advantages, complementary values and strong alignment’ to the acquirer.

Alpha Auto regards Lookers as a ‘crucial pillar’ in its vision of becoming ‘a leading global auto retail group, which will enhance geographic diversification and stability for both businesses given leading positions in both the UK and North America.’

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, said Lookers’ takeover continues a trend that has ‘seen the UK-listed car retail sector shrink in recent years due to takeover activity. He said: ‘Scale matters in this industry and operators are always looking for a way to plant more flags, be it locally or internationally.’

Mould added: ‘Investors will be looking closely at Motorpoint (MOTR) in this regard as its shares last night hit a new all-time low of 102.75p, having lost 73% of its value since September 2021 thanks to a pullback in car prices, with the pains of higher interest rate costs and the cost-of-living pressures hurting demand for vehicles. Might it be the next company in the sector vulnerable to a bid?’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Daniel Coatsworth) own shares in AJ Bell.

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