Lithia Motors, DCH Auto Group To Combine Their Companies

(RTTNews) - Lithia Motors, Inc. (LAD) and DCH Auto Group Limited have entered into a definitive agreement to combine their companies.

Lithia will buy 100 percent of the outstanding shares of DCH Auto Group Inc., a large dealer group, for an estimated $340 million in cash and $22.5 million, or around 300,000 shares of Lithia common stock.

Upon closing, DCH's 27 stores, located in Southern California, New Jersey and New York, will be combined with Lithia's 101 stores in the Western U.S.

The DCH stores are estimated to generate $2.3 billion in annualized revenue. They are expected to increase earnings per share by $0.12 to $0.14 in 2014, excluding acquisition costs.

On an annualized basis, the DCH stores are expected to increase earnings per share by $0.65 to $0.75.

The deal is expected to be funded through the expansion of Lithia's existing credit facility by $600 million, mortgage financing of $200 million, and available cash flows from operations.

It is targeted to close in the fourth quarter of 2014. Lithia expects to incur pre-tax costs associated with the transaction of $0.04 to $0.06 per share in 2014.

The addition of the DCH team allows the combined organization to pursue two growth opportunities: the exclusive franchise, small- to medium-size market strategy of Lithia and the large metropolitan market strategy of the DCH management team.

Together, the combined organization will be able to leverage best-in-class execution around customer satisfaction, sales volume and cost control.

LAD closed up 0.4 percent at $76.68 on Friday.