Pendragon PLC Announcement - Proposed sale and leaseback

28 November 2006
Pendragon Plc ("Pendragon" or the "Company")
Proposed sale and leaseback by Pendragon of Properties to PPH1 and related
transactions
Proposed sub-division of Existing Ordinary Shares and
renewal of authority to make market purchases

Summary

* Proposed sale and leaseback of 81 properties to a joint venture company

owned by Pendragon Group and NWPIL (a wholly owned subsidiary of RBS)
* Represents an expansion of the joint venture formed by Pendragon and

NWPIL in November 2005
* Provides an opportunity to realise cash from the properties and reduce

existing debt levels whilst enabling Pendragon to continue to share in any

increased value of the properties and ensuring that they remain available

for use by the Group
* Consideration for the sale is #257.8 million and net cash proceeds are

#238.9 million after Pendragon's increased equity investment in the joint

venture of #14.3 million, expenses and prepaid rent
* Each property will be leased back to the Group on a 25 year lease for an

aggregate initial annual rent of #16.3 million * Proposed Share Split comprising a five-for-one
sub-division of Existing

Ordinary Shares designed to enhance the liquidity and marketability of the

Company's ordinary shares

Commenting on the Transaction, Trevor Finn, CEO of Pendragon, said today:

"This transaction is in line with our plan to bring down gearing to more normal levels after the
acquisition of Reg Vardy. The property joint venture enables us to release capital tied up in property
assets and invest in higher yielding businesses whilst retaining operational flexibility."

This summary should be read in conjunction with the full text of the following announcement.

The Appendix contains the definitions of certain terms used in this summary and the full announcement.

Enquiries:

Pendragon Plc
Trevor Finn, Chief Executive 01625 725114

David Forsyth, Finance Director

Finsbury Group
Gordon Simpson 020 7251 3801

General

Ernst & Young LLP, which is authorised and regulated in the United Kingdom by the Financial Services
Authority for designated investment business, is acting exclusively for Pendragon plc and for no one
else in relation to the Transaction and will not be responsible to anyone other than Pendragon plc for
providing the protections afforded to clients of Ernst & Young LLP or for giving advice in relation to
the Transaction or any other matter referred to in this announcement.

The distribution of this announcement in certain jurisdictions may be restricted by law and therefore
persons into whose possession this announcement comes should inform themselves about and observe any
such restrictions. Any failure to comply with these restrictions may constitute a violation of the
securities laws of any such jurisdiction.

The information contained herein is not for publication or distribution in or into the United States
of America, Canada, Australia or Japan. These materials are not an offer of securities for sale in
the United States of America, Canada, Australia or Japan. The securities referred to herein have not
been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), as amended,
and may not be offered or sold in the United States absent registration under the Securities act or any
available exemption from registration. No public offering of the securities referred to herein will be
made in the United States.

Certain statements contained in this announcement constitute "forward-looking statements". In some cases,
these forward-looking statements can be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "plans", "prepares", "anticipates", "expects", "intends", "may", "will",
or "should" or, in each case, their negative or other variations or comparable terminology. Investors
should specifically consider the factors identified in this announcement which could cause actual results
to differ before making an investment decision. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results, performance or achievements
of Pendragon or industry results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such forward-looking statements
are based on numerous assumptions regarding Pendragon's present and future business strategies and the
environment in which Pendragon will operate in the future. These forward-looking statements speak only
as at the date of this announcement. Except as required by the Listing Rules, the Prospectus Rules,
the Disclosure Rules, the London Stock Exchange or applicable law, the Company expressly disclaims
any obligations of undertaking to release publicly any updates or revisions to any forward-looking
statements contained in this announcement to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which any such statement is
based.

Announcement

Introduction

Pendragon announces that it has conditionally agreed to dispose of its interest in 81 properties to PPH1,
each of which would then be leased back to the Group. The consideration for this disposal is approximately
#257.8 million. Accordingly the Transaction is a Class 1 transaction for Pendragon under the Listing Rules.

PPH1 is a wholly owned subsidiary of PPH0, which is in turn a joint venture company owned by the Pendragon
Group and NWPIL (a wholly owned subsidiary of RBS). As part of the terms of the Transaction, it is proposed
that the Joint Venture Agreement be amended to include deadlock provisions under which, in certain
circumstances, Pendragon could be obliged to sell its shareholding in PPH0. As the consideration for
such a sale is not currently known and may be up to #1.5 billion, Pendragon is required to treat the
deadlock provisions as a Class 1 transaction under the Listing Rules.

Further, as PPH0 is a 50/50 joint venture company (as defined in the Listing Rules), each of NWPIL
(as a 50/50 joint venture partner), PPH0 and PPH1 (as associates of NWPIL) are related parties of
the Company under the Listing Rules. Consequently, the various elements included in the Transaction
are all treated as related party transactions under the Listing Rules.

For these reasons, the Transaction is subject to approval by the Company's Shareholders and a
circular must be sent to Shareholders to convene an Extraordinary General Meeting to seek this approval.

Pendragon also announces that it proposes to seek the approval of Shareholders to subdivide each of the
Existing Ordinary Shares of 25 pence each into five New Ordinary Shares of 5 pence each. The articles of
association of the Company and the Act require that a sub-division of existing shares is approved by
shareholders. Shareholders are also being asked to approve a replacement authority for the Company to
purchase its own shares, as required by the Act.

An Extraordinary General Meeting is to be held for the purpose of approving the Transaction and Share
Split and a notice convening the EGM will be included in a circular to shareholders (the "Circular")
which will be published shortly.

Sale and leaseback by Pendragon of Properties to PPH1 and related transactions

Details of the Transaction On 2 November 2005, Pendragon announced that it had successfully completed
a Joint Venture Agreement with NWPIL and subscribed for shares in PPH0, the joint venture company. PPH0
is a holding company with a wholly owned subsidiary, PPH1. At that time, PPH1 acquired certain properties
from the Pendragon Group, which were in each case then leased back to the Group.

The business of the PPH0 Group is to purchase and hold properties as an investment. The only properties
presently owned by the PPH0 Group are those that it has acquired from members of the Pendragon Group,
as set out in the paragraph above.

It is now proposed that the Pendragon Group will sell the Properties to PPH1 for an aggregate cash
consideration of approximately #257.8 million. In order to permit its continued presence at the Properties,
the Group will then enter into the Leases with PPH1 for an aggregate initial annual rent of #16.3 million.
The sale and leaseback of certain of the Properties are subject to conditions relating to those Properties.
If these conditions are not satisfied, the relevant Property will be excluded from the sale and the
consideration will be reduced accordingly.

Pendragon, through its wholly owned subsidiary PGSL, owns a 51 per cent. interest in PPH0 with the
remaining 49 per cent. owned by NWPIL. PPH1 will finance the acquisition of the Properties in part from
the proceeds of further equity investment in PPH0 of up to #14.3 million by PGSL and #13.8 million by
NWPIL (subject to reduction if Properties are excluded from the sale to PPH1, as explained above). The
balance of the finance will come from additional borrowings provided to PPH1 by RBS on commercial terms
comprising a nine year facility of up to #232.3 million at market interest rates with no recourse to
Pendragon. Following completion of the Transaction, and assuming that PPH1 acquires all of the Properties,
the aggregate amount invested by the Pendragon Group in PPH0 will be #22.0 million.

Certain changes will be made to the Joint Venture Agreement, which governs the relationship between the
shareholders of PPH0, in order to facilitate the acquisition of the Properties by PPH1 and the equity
investment into PPH0. These include the addition of deadlock provisions, the effect of which is summarised
under the heading ''deadlock provisions'' below. The changes have been negotiated with NWPIL and are
required for the Transaction to proceed.

Further information on the Transaction and the principal terms of the Joint Venture Agreement will be
set out in the Circular.

Background to and reasons for the Transaction The changes to the Block Exemption rules in 2003 have
enabled Pendragon to pursue with more confidence its stated strategy of growing its business with selected
manufacturer partners. The Block Exemption rules introduced greater certainty and opportunities for motor
dealers to take a longer term view and to build value within their businesses as manufacturers are no
longer able to terminate franchise agreements without transparent and objective reasons. Given this
enhanced security of tenure, Pendragon believes that the previous benefits of owning its dealership
properties are no longer so relevant. The Group believes that by investing less cash in property it is
able to generate greater returns by investing in motor car dealership businesses.

The initial Joint Venture Agreement and transaction allowed the Group to realise cash from properties
and reduce existing debt levels, and also permitted Pendragon to continue to share in any increased value
of those properties whilst ensuring that they remained available for use by the Group.

The Transaction represents an expansion of the joint venture and an opportunity to increase existing
benefits. It also represents an important step in making more efficient use of the property assets acquired
by Pendragon as a result of the recent acquisition of Reg Vardy plc, as a number of the Properties
relate to Reg Vardy dealerships.

Information on the Properties The Properties comprise 81 car showrooms, forecourts, offices and workshop
properties, located throughout the United Kingdom and used by the Group for its motor car retailing
business. Freehold or long leasehold title to the Properties is currently owned by members of the Pendragon
Group.

The aggregate net book value of the Properties as at 30 June 2006, the date of the Group's most recent
unaudited interim financial statements, was #158.3 million and after making fair value adjustments amounted
to #212.1 million.

Principal Terms and Conditions of the sale and leaseback Members of the Pendragon Group will dispose of
their respective existing interests in the Properties by selling their title in them to PPH1. The gross
consideration for the Properties is expected to be #257.8 million and will be payable to the respective
selling Group companies in cash at the time the Properties are sold.

Each of the Properties will, subject to completion of the relevant transfer, be leased back on identical
terms to the respective seller. Each Lease is for a term of 25 years on a tenant full repairing and insuring
basis. The aggregate initial annual rent is approximately #16.3 million. The Leases all provide for upward
only rent reviews at annual intervals with the reviewed rent to be increased in line with the increase in
the Retail Prices Index (All Items) issued by the office for National Statistics and capped at 2.8 per cent.
per annum. Each Lease will be entered into immediately after the relevant transfer is completed.

Further information on the sale and leaseback will be set out in the Circular.

Use of Proceeds and Financial Effects of the Transaction The initial gross cash proceeds of the Transaction
receivable by the Pendragon Group are expected to be #257.8 million. The net cash proceeds of #238.9 million
(after taking into account Pendragon's increased equity investment in PPH0 plus Pendragon's own expenses
estimated at #0.6 million and prepaid rent of #4.0 million) will be used to reduce the Group's borrowings.

The Properties do not generate any income for the Group. Following the Transaction, the Board expects that
the rental charges payable under the Leases will not be significantly different from the aggregate of (1)
the interest saved on the reduction in borrowings consequent on the receipt of the net proceeds of the
Transaction, (2) the reduction in depreciation charged on the Properties, and (3) the Group's share of the
net income from its investment in PPH0. Accordingly the Board does not expect the effect of the Transaction
on the Group's continuing profit to be material.

A summary of the financial effects of the Transaction on the Group's net assets will be set out in the
unaudited pro-forma financial information set out in the Circular.

Deadlock provisions As part of the terms of the Transaction, the Joint Venture Agreement will be amended
to include deadlock provisions. In the event of a deadlock arising between the shareholders of PPH0 in
relation to certain matters, the shareholders of PPH0 would meet with a view to resolving the issue giving
rise to the deadlock. If no resolution is agreed then either shareholder may serve notice (such shareholder
being the ''First Shareholder'') on the other (the '' Second Shareholder'') offering to purchase the shares
of the Second Shareholder at a price determined by the First Shareholder (provided that price may not
exceed #1.5 billion). In response, the Second Shareholder may:

DO NOTHING, IN WHICH CASE IT IS REQUIRED TO SELL ITS SHARES TO THE First Shareholder at the price offered
by the First Shareholder (a ''Deadlock Forced Sale''); or
SERVE A COUNTER NOTICE ON THE FIRST SHAREHOLDER, IT WHICH CASE THE First Shareholder is required to sell
all of its shares to the Second Shareholder at that same price.
In the event of a Deadlock Forced Sale where Pendragon is the seller, it is not presently possible to
state the effect of the transaction upon the Group or its earnings, assets and liabilities save that the
earnings (comprising rental income less interest and tax) and assets relating to the PPH0 Group (described
below) would cease to be included in Pendragon's consolidated accounts. In particular the price payable for
its shares would be set by the other shareholder (currently NWPIL), and the sale may accelerate certain tax
charges in the PPH0 Group in relation to the gain in value of properties acquired from the Pendragon Group
during the period when they were owned by a member of the Pendragon Group. Pendragon has agreed to subscribe
for further deferred equity in PPH0 in order to fund those charges (the maximum amount of those tax charges
is estimated at #40 million).

In the event that a Deadlock Forced Sale arises and the Company is required to sell its interest in PPH0,
the Directors currently intend to use the sale proceeds for general corporate purposes.

Further information on the deadlock provisions will be set out in the Circular.

Financial information relating to Pendragon's interest in PPH0 As shown in the table below, for the
year ended 31 December 2005, Pendragon Group's share of post tax profit from the PPH0 Group was
#0.1 million (2004: nil). As at 31 December 2005, Pendragon Group's Investment in the PPH0 Group was
#1.4 million (2004: nil) which is analysed below.

2005 2004

#m #m
Non-current assets 47.1 -
Current assets 7.2 -
Non-current liabilities (41.0) -
Current liabilities (6.7) -

------ ------

Share of net assets 6.6 -
Less: unrealised profits on sales to PPH0 and its subsidiaries (5.2) -

------ ------

Net assets 1.4 -

------ ------

Income 0.5 -
Expenses (0.4) -

------ ------

Post tax profit 0.1 -

The above table has been extracted without material adjustment from the audited consolidated statutory
accounts of Pendragon for the year ended 31 December 2005. The unaudited interim financial statements
of Pendragon for the 6 months ended 30 June 2006 disclose that Pendragon Group's share of post tax
profit from the PPH0 Group was #0.3 million (6 months ended 30 June 2005: nil) and at 30 June 2006 its
Investment in the PPH0 Group was #2.2 million (30 June 2005: nil).

Proposed sub-division of Existing Ordinary Shares

In recent years the price of the Company's ordinary shares has risen considerably. The closing mid-market
price for one Existing Ordinary Share on 24 November 2006 (the latest practicable date before this
announcement) was 572.5 pence. The Directors believe that it is appropriate to propose the Share Split,
which comprises a five-for-one sub-division of Existing Ordinary Shares, and that this will enhance the
liquidity and marketability of the Company's ordinary shares.

The Company's authorised ordinary share capital prior to the Share Split is #40,000,000, which is divided
into 160,000,000 Existing Ordinary Shares, having nominal value of 25 pence each. The Company's issued
ordinary share capital is #32,801,367 divided into 131,205,468 Existing Ordinary Shares, having a nominal
value of 25 pence each. Following the Share Split, the total value of the authorised ordinary share
capital will remain at #40,000,000 but will be divided into 800,000,000 New Ordinary Shares of 5 pence
each.

Current trading and prospects of the Pendragon Group

On 7 August 2006, Pendragon announced its unaudited interim results for the half year ended 30 June 2006.
Pendragon stated that trading performance across the Group had been good against the backdrop of a weaker
UK new car market which was down by 4.2 per cent. year on year. Pendragon reported growth of 14 per cent.
in adjusted earnings per share and an increase in Group revenues of #894.3 million to #2,645.5 million.

Since the interim results date, UK interest rates have risen to a five year high of 5 per cent. and we
believe this is adversely impacting on consumer confidence. Whilst this has made trading conditions more
difficult, we still expect to finish the year broadly in line with our expectations.

Good progress has been made on the integration of the Reg Vardy group acquired earlier this year with a
new Group structure now in place. However, certain aspects of the integration process had to be put on
hold due to the investigation of possible competition issues around the acquisition by the Office of
Fair Trading. This investigation has now been satisfactorily completed and it is anticipated that four
dealerships will be disposed of before the end of January 2007. The integration process will now continue
and it is anticipated that it will be completed in line with our original plan.

Enquiries:

Pendragon Plc
Trevor Finn, Chief Executive 01625 725114

David Forsyth, Finance Director

Finsbury Group
Gordon Simpson 020 7251 3801

General

The distribution of this announcement in certain jurisdictions may be restricted by law and therefore
persons into whose possession this announcement comes should infirm themselves about and observe any
such restrictions. Any failure to comply with these restrictions may constitute a violation of the
securities laws of any such jurisdiction.

Certain statements contained in this announcement constitute "forward-looking statements". In some cases,
these forward-looking statements can be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "plans", "prepares", "anticipates", "expects", "intends", "may", "will",
or "should" or, in each case, their negative or other variations or comparable terminology. Investors
should specifically consider the factors identified in this announcement which could cause actual results
to differ before making an investment decision. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results, performance or achievements
of Pendragon or industry results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such forward-looking statements
are based on numerous assumptions regarding Pendragon's present and future business strategies and the
environment in which Pendragon will operate in the future. These forward-looking statements speak only
as at the date of this announcement. Except as required by the Listing Rules, the Prospectus Rules, the
Disclosure Rules, the London Stock Exchange or applicable law, the Company expressly disclaims any
obligations of undertaking to release publicly any updates or revisions to any forward-looking statements
contained in this announcement to reflect any change in the Company's expectations with regard thereto or
any change in events, conditions or circumstances on which any such statement is based.

APPENDIX

Definitions

The following definitions apply throughout this announcement unless the context requires otherwise:

''Act'' or ''Companies Act'' . . . . . . . . . . the Companies Act 1985(as amended)

''Block Exemption rules''. . . . . . . . . . . . the European Commission Motor Vehicle
Block Exemption (Commission Regulation
(EC) No. 1400/2002)

''Deadlock Forced Sale'' . . . . . . . . . . . . the obligation on a shareholder in the
Joint Venture Company to sell its shares
to the other shareholder at the price
offered by the other shareholder, which
may arise in accordance with the deadlock
resolution procedures more fully set out
in the Circular

''Directors'' or ''Board'' . . . . . . . . . . . the directors of Pendragon whose names will
be set out in the Circular

''Disclosure Rules'' . . . . . . . . . . . . . . the disclosure rules of the UKLA

''Existing Ordinary Shares'' or ''Existing Pendragon Shares'' . . . . . . . . . . . . . . . ordinary
share of 25 pence each in the capital of the
Company

''Extraordinary General Meeting'' or ''EGM'' . . the extraordinary general meeting of the Company,
notice of which (is/will be) set out in the Circular

''FSMA'' . . . . . . . . . . . . . . . . . . . . the Financial Services and Markets Act 2000,
as amended

''Joint Venture Agreement'' . . . . . . . . . . a joint venture agreement relating to PPH0
made between (1) PGSL (2) the Company and
(3) NWPIL, dated 31 October 2005

''Leases'' . . . . . . . . . . . . . . . . . . . the leases entered into by the Group with
PPH1 in relation to the Properties

''Listing Rules'' . . . . . . . . . . . . . . . the Listing Rules made by the UK Listing
Authority under section 73A of FSMA

''London Stock Exchange'' . . . . . . . . . . . London Stock Exchange plc

''New Ordinary Shares'' or ''New Pendragon Shares'' the new ordinary shares of 5 pence each
in the capital of the Company arising
from the Share Split

''NWPIL'' . . . . . . . . . . . . . . . . . . . NatWest Property Investments Limited

''Official List''. . . . . . . . . . . . . . . . the list maintained by the UK Listing
Authority
''Pendragon'' or the ''Company'' . . . . . . . Pendragon PLC

''Pendragon Group'' or the ''Group'' . . . . . . Pendragon and its subsidiary undertakings

''PGSL'' . . . . . . . . . . . . . . . . . . . . Pendragon Group Services Limited

''PPH0'' or ''Joint Venture Company''. . . . . . PPH0 Limited, a 50/50 joint venture
company (as defined by the Listing Rules)
owned by PGSL and NWPIL

''PPH0 Group'' . . . . . . . . . . . . . . . . . PPH0 and its subsidiaries

''PPH1'' . . . . . . . . . . . . . . . . . . . . PPH1 Limited, a wholly owned subsidiary
of PPH0

''Properties'' . . . . . . . . . . . . . . . . . the properties to be disposed of by the
Pendragon Group as part of the Transaction

''Prospectus Rules'' . . . . . . . . . . . . . . the Prospectus Rules brought into effect
on 1 July 2005 pursuant to Commission
Regulation (EC) No. 809/2004

''RBS'' . . . . . . . . . . . . . . . . . . . . The Royal Bank of Scotland plc

''RegVardy'' . . . . . . . . . . . . . . . . . . RegVardy plc

''Shareholders'' . . . . . . . . . . . . . . . . holders of shares in the Company

''Share Split'' . . . . . . . . . . . . . . . . the subdivision of each of the Existing
Ordinary Shares into five New Ordinary
Shares of 5 pence each and consequential
grant of a replacement authority for
the Company to purchase its own shares

''Transaction'' . . . . . . . . . . . . . . . . the proposed transactions to be entered into
by the Pendragon Group with or in
relation to PPH0, in particular (i)
the sale of the Properties, (ii) entering
into the Leases, (iii) subscription for
further equity shares, (iv) changes to the
Joint Venture Agreement to include provisions
under which Pendragon could in certain
deadlock situations be required to sell
its interest in PPH0, and (v) other changes to
the terms of the Joint Venture Agreement

''UKLA'' or ''UK Listing Authority'' . . . . . . the Financial Services Authority acting in its
capacity as the competent authority for the purposes
of Part VI of FSMA.

The terms ''subsidiary'' and ''subsidiary undertaking'' as used in these definitions shall have the
meanings given by the Act.

All references to legislation in this announcement are to the legislation of England and Wales unless
the contrary is indicated. Any reference to any provision of any legislation shall include any amendment,
modification, re-enactment or extension thereof.

Words importing the singular shall include the plural and vice versa, and words importing the masculine
gender shall include the feminine or neutral gender.

References to ''#'', ''sterling'', ''p'' and ''pence'' are to the lawful currency of the United Kingdom.