CAR dealer Lookers is expected to make an offer for rival Reg Vardy this week, sparking a possible bidding war with Pendragon.

The Manchester company is considering a bid of about 850p a share, valuing Reg Vardy, of Sunderland, at £480m.

The move could disrupt an agreed £450m takeover offer - the equivalent of 800p a share - made last month by Pendragon, which is valued at £655m.

Lookers, which is valued at £165m and has more than 90 outlets, said in December that it was considering an offer for Reg Vardy, days after Pendragon tabled its offer.

Later in the month, it said is was prepared to beat Pendragon's bid and said it had made "good progress" in finding financial backers for a possible cash offer.

Last night, a spokesman said: "Lookers is getting its finances in place and is looking to make an announcement shortly."

Sir Peter Vardy, company chief executive and son of the founder, Reg, has already agreed to sell the family's 28.3 per cent share of the firm to Pendragon.

Sir Peter has also given Pendragon an option on his own shares - 16.6 per cent of the company - which allows Pendragon to buy his stake at 800p a share, even if another bidder makes a higher offer. The family stands to make about £125m if the deal with Pendragon goes through.

But while breaking this "irrevocable agreement" with Pendragon could cost the Vardy family as much as £4.55m, it is believed that the remaining 72 per cent of shareholders will wait for the highest offer.

A combination of Pendragon, which is the UK's biggest car dealership, with 236 outlets, and Reg Vardy would create a company with a market capitalisation of £1bn and annual sales approaching £5bn.

Reg Vardy, which has 102 dealerships, mainly in the North-East, announced record half-year profits last week.

Despite figures showing a fall in demand for new cars in the UK, Reg Vardy announced a 22 per cent rise in pre-tax profits to £21.1m in the six months to October.

Sales grew by 15.7 per cent to £1.08bn during that time.

The company also said trading in November and last month had been in line with expectations and it remained confident for the full year.

Reg Vardy said yesterday it was unable to comment on Lookers' prospects until an actual bid was put forward.