MEDFORD, Ore. — Lithia Motors Inc. and New Jersey-based DCH Auto Group Limited, one of the 10 largest dealer groups in the country, have entered into a definitive agreement to combine their organizations, the two companies announced this week.
In the transaction, Lithia will acquire 100% of DCH Auto Group’s outstanding shares for an estimated price of approximately $340 million in cash and $22.5 million, or approximately 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 United States. The DCH stores generate approximately $2.3 billion in annualized revenue, according to estimates, and are expected to increase Lithia’s 2014 earnings per share by approximately $0.12 to $0.14, excluding acquisition costs. On an annualized basis, the DCH stores are expected to increase earnings per share by $0.65 to $0.75.
The transaction is expected to be funded through Lithia's existing credit facility, which it plans to expand 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, and is subject to customary approval conditions. Lithia expects to incur pre-tax costs associated with the transaction of approximately $0.04 to $0.06 per share in 2014.
DCH operates 14 stores in Southern California and 13 in New Jersey and New York. Its brand mix consists of 44% Honda, 30% Toyota, 7% BMW, 5% Acura, 4% Nissan, 3% Lexus, 3% Audi, 2% CJD and 2% Kia. The DCH stores will continue to be led by the group’s current management team, with George Liang, DCH's president, reporting directly to Bryan DeBoer, Lithia's president and CEO. After the transaction is completed, Shau-Wai Lam, DCH's founder, is expected to join Lithia’s board of directors.
The addition of DCH will allow the combined organizations to pursue two growth opportunities: the exclusive franchise, small- to medium-size market strategy that is Lithia's hallmark and the large metropolitan market strategy the DCH management team has honed since the 1970s, officials said.
"For the past several years, we have been seeking a strategic partner to help us to enter the Eastern United States. The DCH organization is an ideal fit with our existing team,” said DeBoer. “We share similar strategic goals and core values, and have complementary strengths.
“DCH has proven their ability to deliver customer happiness while executing a high volume strategy in metro markets. Lithia embodies continuous improvement and produces sector leading operating efficiency,” he added. “Together, the organization will be able to grow in multiple markets, learn from each other, and deliver improved efficiencies due to scale."