AP Eagers to grow into $2.4bn company by merging with rival

A Brisbane-based car dealer has made an offer to acquire a sector rival in a move that could create a combined $2.42 billion company and add more than 200 new dealerships around the country.

THE 106-year-old AP Eagers wants to merge with its major competitor to create the country’s biggest car retailing group amid growing signs of consolidation in the auto market.

Brisbane-based AP Eagers said the merger with Perth-based AHG would create a company worth $2.42 billion, with 229 new car dealerships in Australia and 13 sites in New Zealand.

AP Eagers chief executive Martin Ward said the proposed merger brought together two highly complementary businesses as they prepared for looming industry changes, including the emergence of popular brand electric vehicles.

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“The merged group is expected to be better placed to pursue future growth opportunities through greater geographical portfolio diversification .and a larger more flexibile balance sheet,” said Mr Ward.

Under the merger proposal, AP Eagers, which already owns 28.84 per cent of AHG, will offer one AP Eagers share for every 3.8 AHG shares.

The combined company, whose headquarters will remain in Brisbane, will represent 33 car brands and 12 truck and bus brands, including all of the top 26 leading car brands.

AP Eagers chief executive Martin Ward. File picture

AHG told shareholders to take no action while the board evaluated the “unsolicited conditional takeover offer”.

“The AHG board strongly believes in the underlying growth prospects and strengths of each of our businesses,” said AHG acting chair John Groppoli.

The auto retailing industry is facing rising disruption in the form of electric cars, autonomous vehicles and ride-sharing apps.

Mr Ward said that the company, which was founded in 1913, was preparing for changes, which would likely see the “big glass box” showrooms being replaced by smaller showrooms located in satellite locations such as shopping centres.

AHG skidded to a first-half loss in February, citing a tough retailing environment and regulatory changes to finance and insurance.

It scrapped its dividend and cut its guidance after a $223 million writedown against its struggling franchises and refrigerated logistics businesses.

The planned merger would give the combined company 11.9 per cent of the Australian car market with a presence in all Australian states except the ACT.

“We are going to be stronger together and this will give us a better opportunity to address the changes occurring in the future in the form of electic vehicles, connected cars and automation,” said Mr Ward.

“These changes are not going to happen overnight but will play out over the next 10 to 20 years as customer preference change.”

Mr Ward said car makers who supplied vehicles to the company were spending $100 billion developing electric and automated vehicles.

AP Eagers shares rallied 5.6 per cent or 41¢ to $7.69 on Friday, while AHG surged 20.8 per cent or 37¢ to $2.15.