AP Eagers plots giant motor merger with Automotive Holdings Group

AP Eagers’ bid for rival AHG aims to create a new Australian car dealership giant.

AP Eagers CEO Martin Ward. Photo: Glenn Hunt

Listed car retailer AP Eagers has made a conditional all-scrip offer to acquire Automotive Holdings Group, by way of a $2 billion off-market takeover bid.

The merged company will be easily Australia’s largest automotive dealership group, a title AHG already lays claim to.

The group would represent 33 car brands across 242 new car dealerships in Australia and New Zealand. It would also have 68 truck and bus dealerships around Australia, representing 12 truck and bus brands.

AP Eagers, which already holds a 28.84 per cent stake in Automotive Holdings, will offer one share for every 3.8 shares in AHG under the offer.

AP Eagers chief executive Martin Ward said merger between the two companies represented a compelling opportunity for both sets of shareholders.

“Our proposal brings together two highly complementary businesses, with enhanced flexibility,” Mr Ward said in a statement to the ASX on Friday.

“Importantly, the offer enables Automotive Holdings shareholders to participate in the upside and benefits afforded by AP Eagers’ proven management expertise and strategy which is expected to enable the combined group to grow and be better placed to respond to the rapidly evolving motor vehicle retailing market.”

Automotive Holdings responded to the offer by saying it believed in the underlying growth prospects in the each of the business, and that its board would evaluate the offer.

However it recommended that shareholders take no action in the meantime.

“AHG’s Automotive Retail business is the largest franchised automotive retail network in Australia and New Zealand, with considerable opportunity to leverage its scale to grow earnings,” acting chair John Groppoli told shareholders.

“Similarly, the AHG Refrigerated Logistics business is the largest operator of temperature controlled logistics in Australia and is a highly strategic asset.

“We will assess APE’s proposal in the context of the fundamental value for our businesses, the value of the APE shares being offered and the value that can be delivered to shareholders under alternative scenarios.

“We are undertaking a strategic review of Refrigerated Logistics and continue to explore our options in relation to this asset.”

Given its current holding in Automotive Holdings, AP Eagers said it considered the likelihood of a competing proposal to be low.

At 11.30am (AEDT), shares in Automotive Holdings had shot up 14.6 per cent to $2.04 while AP Eagers shares were trading 5.8 per cent higher at $7.70.

Sydney billionaire Nick Politis, ranked 56th on Australia’s Richest 250, owns a substantial stake in AP Eagers.

AP Eagers said that the merged company would be better placed to pursue growth opportunities, through greater portfolio diversification and enhanced brand portfolio diversification.

The group also said it anticipates it would benefit from $13.5m each year in pre-tax cost synergies, if AP Eagers acquires more than 90 per cent interest in Automotive Holdings.

Today’s announcement comes after Automotive Holdings announced it would undertake a strategic review of its struggling refrigerated logistics business in February, after the company booked a $249.8 million impairment against the carrying value of its Automotive and Refrigerated Logistics businesses.

Automotive Holdings had planned to sell the refrigerated logistics business to a Chinese conglomerate last year in a deal worth $400m, but that fell through in July partly because the company wasn’t able to get timely approval from Australia’s Foreign Investment Review Board.

For the half year through December, Automotive Holdings booked a $225.6m net after tax loss, compared to a $24.2m profit for the previous corresponding period.

The company said tough retail conditions and regulatory changes to car finance and insurance had impacted.

The AP Eagers offer is subject to approval by the competition watchdog.

ACCC chairman Rod Simms told the Your Money program on Friday that he couldn’t comment on the proposed merger.

But he said the commission would be taking a close look at the proposal.

“Obviously with car dealerships, it can be quite location specific, depending on who’s got what dealerships where. So I guess it can be a fairly complicated exercise,” he said.

“We will have a close look at it, there’s no doubt about that.”