AP Eagers makes takeover offer for rival AHG


Major shareholder puts offer to others with vehicle retail crown in offing

AP Eagers makes takeover offer for rival AHG
Martin Ward

 

Two of the nation’s largest car and truck retailers may become one if AP Eagers’ offer of one of its shares for every 3.8 of Automotive Holding Group (AHG) is accepted.

If realised, the merged company would control 68 truck and bus dealerships nationwide.

The offer comes seven years after AP Eagers, in a surprise move, took a 16 per cent stake in AHG, sparking speculation that it might be some sort of takeover strategy uniting the two Western Australia-headquartered firms.

That shareholding has grown to 28.84 per cent.

"As AHG's largest shareholder, and as a leader in the automotive retail industry with 100-plus years of experience and a track record of profitable growth and shareholder returns since listing in 1957, we are convinced that a combination of AP Eagers and AHG represents a compelling opportunity for both sets of shareholders," AP Eagers CEO Martin Ward says of today’s move.

"Our proposal brings together two highly complementary businesses, with enhanced flexibility. 

"Importantly, the offer enables AHG 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." 


Read how AP Eagers first snapped up a significant stake in AHG, here


For its part, AHG highlights that the offer is "highly conditions" including Australian Competition and Consumer Commission (ACCC) approval.

Its board has advised shareholders to hold fire.

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

"AHG’s automotive retail business is the largest franchised Automotive Retail network in Australia and New Zealand, with considerable opportunity to le verage its scale and grow earningis.

"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 contect of the fundamental value of 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 out options in relation to this asset."

Ward’s company argues the deal allows for:

  • greater geographical portfolio diversification through exposure to motor vehicle retailing markets in all states and territories (other than the ACT), representing about 11.9 per cent of the Australian new vehicle sales market, as well as a market presence in New Zealand
  • enhanced brand portfolio diversification through the merged group’s anticipated 229 new Australian car dealership locations, 13 new car dealership locations in New Zealand and 68 new truck and bus dealership locations in Australia. The Australian dealerships will represent 33 car brands and 12 truck and bus brands, including all of the top 26 leading car brands for the las calendar year. "Collectively, these leading 26 car brands represented 95.5 per cent of the total new vehicle sales market in Australia for that same period."
  • anticipated pre-tax cost synergies estimated at $13.5 million a year if AP Eagers acquires a relevant interest in greater than 90 per cent of AHG shares, and therefore moves, by way of compulsory acquisition, to acquire full ownership of AHG
  • a "larger, more flexible balance sheet with greater financial strength to pursue future growth opportunities, as evidenced by the following financial estimates", on the basis that AP Eagers acquires 100 per cent of AHG.

The latter point could see unaudited profit before tax of $203 million excluding synergies, a market capitalisation of about $1.84 billion and an enterprise value of approximately $2.42 billion.

AP Eagers is banking on the figures and AHG’s recent difficulties making compelling case.

"In the context of AHG’s declining performance, the combined group is expected to be better placed to pursue growth opportunities through greater geographical diversification, enhanced brand portfolio diversification and a larger, more flexible balance sheet," AP Eagers says in its investor presentation.

Initial synergies before any operational review, are put at $13.5 million through removing duplication of costs including head office, board, senior executives, technology, audit, compliance and corporate services and costs associated with operating as a listed company.

 

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