Will AutoNation go Private?

[XDCX]

AutoNation has been in the news with Wall Street lately as Billionaire Edward Lampert continues to increase his stake in the auto retailer.

Mr. Lampert has been purchasing shares in the open market as recently as last week and now owns 37.2% of the company. Mr. Lampert is probably best known for his purchase of Sears and K-Mart.

It had always been speculated that the real value in Sears and K-Mart is in their real estate holdings. The "break-up" value of the two struggling retailers is probably greater than the value Wall Street currently assigns to their business operations.

Can the same be said for AutoNation?

It would be interesting to learn if AutoNation owns or leases most of their dealerships? I know that the Sonic Group mentioned that they are trying to switch from leases to purchases. Given Detroit's desire to eliminate dealerships and Lampert's interest in real estate the recent purchase of shares in the open market has fueled speculation.

The possibility that Lampert would take AutoNation private has been brewing since he stepped down from their Board of Directors last May.

Here's a link to the news report: http://biz.yahoo.com/ap/080313/auton...lder.html?.v=1

[SHACOS]

I'd be willing to bet Autonation leases most of their dealerships. I say that because it seems to be the practice of publically owned dealer groups to keep large depreciable buildings off the Balance Sheet.

As far as Autonation going private, I would say it would be a good move for them. I've had a chance to see their financial control structure and because each region of their company operates off of several different systems (Reynolds & Reynolds, ADP) and several different procedures, there is significant risk. The public market is so risky especially if your control structure is weak.

[XDCX]

Originally Posted by SHACOS

I'd be willing to bet Autonation leases most of their dealerships. I say that because it seems to be the practice of publicly owned dealer groups to keep large depreciable buildings off the Balance Sheet.

As far as Autonation going private, I would say it would be a good move for them. I've had a chance to see their financial control structure and because each region of their company operates off of several different systems (Reynolds & Reynolds, ADP) and several different procedures, there is significant risk. The public market is so risky especially if your control structure is weak.

SHACOS - Thanks for the excellent commentary as usual.

My guess is that you're right - most of the dealerships are probably leased. I'd have to study the Balance Sheet to know for sure.

I was surprised to learn that AutoNation didn't have a standardized computer system. One of the benefits of being a "consolidator" is supposed to be the efficiencies you gain by virtue of being large and centralized. It appears that AutoNation may not have taken advantage of that opportunity.

As I type this, their stock continues to slide with the rest of Wall Street. It will be interesting to see what happens with the Auto Retailers in the months to come.