Lookers to raise £80.7 mln to cut debt

By Mark Potter

LONDON (Reuters) - British car dealer Lookers (LOOK.L) is raising 80.7 million pounds in a fully underwritten share sale to cut debt and change its banking arrangements to more favourable terms.

The firm said on Friday it would issue 201.8 million new shares at 40 pence each, a 19 percent discount to Thursday's closing price. The new stock will represent 52.6 percent of the group's enlarged share capital following the fundraising.

Lookers also said its like-for-like new car sales for the first five months of this year were 10 percent ahead of the market, which is estimated to be down 28 percent, and that Peter Jones, managing director of the group's motor division, will succeed Ken Surgenor as chief executive on October 1.

Car manufacturers and retailers have been hit hard by a plunge in sales in the economic downturn.

U.S. giant General Motors GM.N filed for bankruptcy earlier this month, while car dealer Inchcape (INCH.L) raised 249 million pounds in a deeply discounted rights issue in March.

Lookers, which has over 100 dealerships and sells cars ranging from Aston Martins and Jaguars to Vauxhalls and Volkswagens, said earlier this month it had agreed a 210-million-pound refinancing deal with its banks, but on tough terms that included suspending dividend payments.

The firm said on Friday the fundraising would allow it to renegotiate the banking agreements and cut its borrowing costs by 16.7 million pounds from July 1 to the end of 2011 and also allow for the possible resumption of dividends in 2010.

Numis and KBC Peel Hunt are fully underwriting the fundraising, while Rothschild is advising.

"With the issue of leverage now unequivocally 'off the table', in our view, we expect Lookers to re-rate," Numis analysts said in a research note.

At 3 p.m. Lookers shares, which plunged from a high of 220 pence in May 2007 to as low as 18.5 pence in March, were up 7.1 percent at 53 pence.

ENCOURAGING SIGNS

Lookers said its biggest shareholders, Tony Bramall and Trefick, would both participate in the fundraising to keep their existing stakes of 22.3 and 21.3 percent respectively.

The firm, which has cut jobs and shut loss-making businesses to save money in the downturn, said the volume and value of used car sales had picked up in the first five months of this year; that its aftersales business continued to grow; and that its parts distribution business was performing well.

"Beyond a cyclical recovery, atop a lean cost structure, we think Lookers' disproportionate exposure to after sales and independent parts (c.60% gross profits) leaves the group well positioned as the car manufacturing and car dealership industry continues to restructure," the Numis analysts said.

Separately, car dealer Pendragon (PDG.L) said on Friday Britain's new car market had been in line with its expectations in the first five months of this year and forecast it would remain challenging for the rest of 2009.