Penske Automotive Group on Thursday (Oct. 15) announced it signed a merger agreement to be taken private by Penske Corp. and Mitsui & Co.
Motown Acquisition Corp., created for the deal and owned by Penske Corp. and Mitsui, is the buyer of the estimated $3.9 billion bid, the latter said in a statement.
The deal values the company at an enterprise value of about $16.3 billion, PAG said.
For context: When the deal closes, Penske will own about 64% of the company and Mitsui about 36%, according to the companies.
First proposed in July, the deal is expected to close in the first quarter, subject to regulatory and shareholder approvals.
Shareholders outside the investor group will receive $212 per share in cash, the company said.
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Worth noting: Jeff Lick, an analyst with Stephens Inc., called the deal a “controller buyout,” in his research note titled, “First Look—The Famous Final Scene…,” which we hope is a nod to the Bob Seger song.
Penske Corp. and Mitsui already control the company and are buying out the roughly 28% of shares they don’t own, Lick said.
Penske Corp. and Mitsui first bid $210 a share and settled on $212. Stephens rates PAG equal-weight with a $210 price target.
According to Lick, both sides have closely followed the MFW process, a legal standard set by case law to protect minority shareholders. Under that process, PAG formed a special committee of disinterested board members.
The committee hired advisers, negotiated the $212 price based on their recommendations, and is recommending the deal.
The main remaining hurdle is a majority vote of minority shareholders, Lick wrote.
Because those shareholders hold only about 28% of the stock, an investor could in theory buy about 14% of PAG’s shares before the vote and gain real leverage over the outcome.
“We see this as unlikely, but it’s worth knowing,” Lick wrote.
What they’re saying: Auto retail icon Roger Penske, PAG’s chair and CEO, said in a statement that the group has had a long relationship with its partner.
“Mitsui has been a shareholder for 25 years, and we have had a productive relationship over the past quarter-century,” Penske said.
George Karolis, president of the Presidio Group, told CDG News in July that a private Penske Automotive would not likely affect the average dealer.
“Your competition is already your competition in your local market,” Karolis said.
By the numbers: According to an SEC filing, Penske Corp. and Mitsui will put up to $2.2 billion in equity toward the deal.
JPMorgan, Bank of America and Wells Fargo have committed up to $1.8 billion in debt financing.
The deal is not subject to a financing condition.
PAG would owe a $383 million termination fee in certain cases, such as accepting a superior offer.
The buyer would owe a $488 million reverse termination fee if it breaches the agreement or fails to close when required.
What’s next: PAG will release third-quarter results on Oct. 28 before the market opens. The company said it won’t hold an earnings call because of the deal.
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