AutoNation ( AN) offered to repurchase 19% of its outstanding common stock at a significant premium to the market price, in what major holder Ed Lampert says will "create a more efficient capital structure."

The roughly $1.15 billion buyback will be financed through debt and cash. Existing owners are being offered $23 a share for their stock, a 10% premium to AutoNation's Monday close of $20.89. In premarket trading Tuesday, shares rose $1.84, or 8.8%, to $22.73.

Lampert, who owns 77 million AutoNation's shares, or about 29% of the company, said he will tender all of his stock into the buyback offer. Since the company will have to pro-rate its repurchases, Lampert says he expects his percentage stake in AutoNation to remain unchanged.

The company will also redeem up to $323.5 million of aggregate principal amount of its 9% senior notes due 2008.

AutoNation filed to sell $900 million of senior secured notes that it will use, along with about $450 million of bank financing and cash, to carry out the stock repurchase and bond redemption. One effect of the transaction will be a moderate leveraging of the company's balance sheet, making the tactic similar to a more radical recapitalization carried out last month by Affiliated Computer ( ACS).

AutoNation expects the transaction to add 8 cents to 10 cents a share to its annual earnings.

"The tender offer for our common stock demonstrates our confidence in the future of AutoNation. The transaction will allow us to deliver stockholder value while retaining financial flexibility to take advantage of future opportunities," AutoNation said.

The tender offer will begin no later than Friday and remain open for 20 days.

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