Lloyds sells dealer chain

Lloyds TSB Asset Finance has sold its motor retail division,
Dutton Forshaw Group Ltd, to motor retailer Lookers for a total
consideration of £60m, seemingly as part of a plan to divest itself
of non-core businesses in a bid to boost profits.

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The sale of the motor retail business follows the recent auction of
Lloyds TSB Asset Finance’s insurance business Abbey Life to
Deutsche Bank for £977m in July. 

Lookers’ acquisition of Dutton Forshaw, which was announced on
October 3 and is expected to be completed on October 26, is in
response to Lloyds’ decision to concentrate on its core business
and ensure Dutton can be more competitive.

 “There is considerable consolidation across the industry and
this trend will continue, so there will be a smaller number of
larger players,” a spokesperson for Lloyds TSB Asset Finance
said. 

“Dutton Forshaw is not a core business for Lloyds, so a sale to a
bigger existing player means more opportunity for its future
economies of sale and the future growth of the business, and will
give the staff more scope.

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“Lloyds’ group strategy is to focus on core business and the time
was right in this approach being made for the business and way the
market is going,” the spokesperson added.

Terms of the sale

The deal comprises a cash payment of £28m for the entire issued
share capital of Dutton and the assumption of a maximum of £32m in
debt. But Lookers said it expects to retain most of the Dutton
Forshaw’s current employees.

The acquisition means Lookers will add an extra 31 sites to its
existing 111 – strengthening its presence in the south-east and
north-west of England, and in south Wales.

This includes an increase in its number of Ford outlets from one to
eight, its Mercedes-Benz outlets from four to eight and VW outlets
from five to nine, as well as possession of Chevrolet, Chrysler
Jeep and Dodge, Citroën, Honda, Hyundai, Land Rover, Peugeot and
Skoda outlets.

Lloyds TSB was advised by a legal team from Salans, headed by
Richard Thomas, while Addleshaw Goddard, with lead partner Michael
Birchall, acted for Lookers. The sale was organised through an
auction process organised by the Corporate Finance department of
Ernst & Young.

Long-term strategy

David Dyson, finance director at Lookers said that the acquisition
is also part of the company and motor retail market’s strategy for
consolidation. “It is true that there is increasing consolidation
as it is a fact that there are about 5,500 UK franchise outlets,
and 800 of those are in the hand of public companies.
[Consolidation] is a good thing for the market, because it makes a
more orderly route and drives efficiencies,” Dyson added.

 Dutton Forshaw Motor Company, which was founded by Richard
Dutton-Forshaw in Lancashire in the early 1960s and is
headquartered in Bicester, offers lucrative business opportunities
for Lookers.

In 2006, it generated sales of £431m, an operating profit of £3m
and gross assets of £129m – a bed of capital which is expected to
help Lookers diversify its profit stream, increase its property
holdings by £40m to £200m and be flexible in the face of an
imminent slowdown in consumer spending with the ‘credit
crunch’.

“It is either an opportune time or a risky time to buy a new
business, but we’re committed to consolidation. A blip in the
market is short term and we can’t judge everything by what’s going
to happen today. We need to think in the medium to long term,”
Dyson said.

In September, Lookers beat forecasts and recorded interim pre-tax
profits of £18.1m, up 41 per cent on the same period in 2006,
helped by the success of its big Vauxhall centre at Star City in
Birmingham. The retailer won its first Ford franchise outlet in
September.