Reg Vardy backing Pendragon bid

Reg Vardy is the UK's third largest car dealership

Car dealer Reg Vardy has recommended a £506m takeover bid from rival Pendragon to its shareholders, overturning a previously agreed offer from Lookers.

Pendragon, which is Britain's biggest car dealer, made the offer on Friday, trumping Lookers' bid of £492m.

It had previously suggested a three-way deal to buy both Reg Vardy and Lookers, which was rejected by both targets.

With Reg Vardy now in Pendragon's clutches, rival Lookers has announced it will not proceed with its own bid.

Pendragon kicked off the bid battle for Reg Vardy in November with a proposal of 750 pence a share.

After agreeing an 800p-per-share deal in December, it was trumped by Lookers which offered 875p a share. However, Pendragon then came back with a 900p-per-share offer on Friday.

The Pendragon takeover is aimed at strengthening the companies' position in Europe's second biggest car market, which suffered a 5% drop in sales last year as consumers tightened their purse strings.

Pendragon has 230 outlets and franchises from carmakers including Alfa Romeo and Maserati, while Reg Vardy has franchises including BMW, Citroen and Fiat.

"The combined businesses will be a formidable force in the motor retail trade," said the chairman of Reg Vardy, John Standen.