Cliff Banks - The Banks Report

Leucadia Becomes Second Large Investment Firm to Exit Dealership Business in 6 Months

April 10, 2018 — Leucadia National Corporation announced yesterday it is selling its equity and real estate interests in dealer group Garcardia to the Garff family, its partners in the joint venture that began in 2006.

Leucadia, a publicly traded holding company (LUK – NYSE) holds a 75% interest in Garcadia, which includes 28 dealerships located in California, Iowa, Texas and Michigan. The Garff family separately owns another 26 dealerships in Utah. As part of the deal which has an enterprise value of $675 million, Leucadia will receive $425 million comprised of $375 million cash and $50 million in preferred equity once it closes sometime in the third quarter. It also gets a pre-tax gain of $220 million.

The automotive retail business was good for Leucadia, which has invested $321 million in Garcadia since its founding in 2006. Along with the $425 million from the sale, Leucadia’s investment generated another $394 million in cash distributions the last 12 years.

Despite the strong returns, there were indications last year that Leucadia might exit the business. The first three quarters of 2017 did not generate the level of returns management expected. But more importantly, executives hinted in the company’s annual letter to shareholders both in 2017 and earlier this year that a renewed focus on its investment banking business was underway.

As part of the strategic focus from being a holding company to a financial services firm, Leucadia also announced yesterday a significant reduction of its interest in National Beef, selling 48% of the company to its Marfrig for approximately $900 million. Leucadia will retain 31% of National Beef. The company also plans to change its name to Jefferies Financial Group Inc. to reflect the pivot in direction.

Leucadia’s move is the second large exit in six months by an investment firm. Last fall, Abrams Capital sold its majority stake in Prime Motor to another investment firm, GPB Capital.

Although Garff Enterprises will take over sole ownership of the Garcadia stores, little will change for the company. The management team — today comprised of Chairman Robert Garff, CEO John Garff and Brett Hopkins, CEO of the automotive group — has run the entire automotive operation since the JV was created. Last year combined, the 54 stores of Garcadia and Garff Enterprises was ranked 8th on the Automotive News Top 150 Dealership Group list in 2017 selling more than 145,00 new and used vehicles with revenue of nearly $4.6 billion.

To read TBR’s Annual Report on Dealership Buy-Sell Activity, Click Here.



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