UBS stake threatens Pendragon takeover of Vardy

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The Independent Online

A Mexican stand-off is developing between the Swiss investment bank UBS and the car dealership Pendragon over Reg Vardy, the smaller rival it wants to buy.

Pendragon is offering 900p for each Vardy share, valuing the company at £506m. It already owns 40.4 per cent of Vardy and is backed by firm commitments from a further 10.6 per cent of shareholders.

But UBS has built a 17.88 per cent stake in Vardy, and is believed to be picking up more shares in the market.

The bank, and two hedge funds which control a further 6.5 per cent of Vardy, thinks Pendragon's offer too mean and want 1,000p for each share. Should Pendragon refuse to pay up, UBS's proprietary trading desk could hold on to its £100m stake and derail Vardy's planned delisting.

It could also prevent Pendragon from stripping out all the cost savings expected from the deal and be a thorn in the new owner's side.

Without 75 per cent of all Vardy's shares, Pendragon would be unable to squeeze out minority shareholders.

However, Pendragon does not believe that UBS could hamper its running of the business.

Nor are traders at UBS likely to welcome long-term ownership of a minority stake in a subsidiary of Pendragon, which has the power to withhold dividend payments. In this position, UBS's stake would be most difficult to trade.

Should Pendragon meet UBS's demand, it must lift its offer to 1,000p for every Vardy shareholder. That would cost Pendragon an extra £33m.

Pendragon already has funding in place from Royal Bank of Scotland for a deal expected to go unconditional later this week. The expectation that Pendragon may raise its bid lifted Vardy shares 4.5 to 905.5p.

It is unclear whether meetings have taken place between Pendragon and its advisers Citigroup and UBS, or the two hedge funds RAB Capital and Trafalgar Asset Management.

Meanwhile Pendragon's ambitions towards another dealership, Lookers, also appear optimistic at the indicated level.

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