CAR dealer Reg Vardy confirmed last night that it had received a takeover approach from larger rival Pendragon plc.

The Sunderland-based dealer said Pendragon may make an offer valuing the company at £422m.

But analysts believe the approach is unlikely to lead to anything, as any suitor would need the backing of Sir Peter Vardy, who owns more than 18 per cent of the shares, and other key stakeholders.

The approach caught the market by surprise and sent shares in Pendragon up by seven per cent as investors saw the advantages of car dealers becoming bigger to maintain their growth.

Although the bid interest was unsolicited, Reg Vardy said it was holding talks with its rival over a cash offer that could be pitched at 750p a share.

Anthony Platts, assistant director at Tees Valley stockbrokers Wise Speke, said: "Reg Vardy hasn't put the word around that they are up for sale, or that they were inviting any bids, which means this is an unsolicited bid.

"But one of the key strengths of Reg Vardy is its management team. It is a good business, but that is a lot to do with the management team rather than the assets they control.

"So with any takeover bid there it would be very important that they keep the team in place."

Pendragon has 236 franchises in the UK where it made the bulk of its profits of £36.8m in the year to April 30, but also has small operations in the US and Germany.

A takeover of CD Bramall in January last year doubled the size of Pendragon and its current market value of £554m makes it larger than Reg Vardy, which has about 100 dealerships.

Reg Vardy's origins date back to the 1920s, when the company's founder began a haulage business at Houghton-le-Spring, near Durham.

In 1946, Reg Vardy began to sell cars, and four years later the company was appointed as a retail dealer with Ford Motor Company at Stoneygate, Houghton-le-Spring.

Reg Vardy died in 1976 after more than 50 years in the business.