The Automotive Holding Group Ltd (ASX: AHG) share price has gone bananas after Australia’s largest car dealership received an offer to merge from its largest shareholder AP Eagers Ltd (ASX: APE). AP Eagers owns 28.84% of AHG.

AP Eagers has been in operation for over 100 years, and after listing in 1957 is Australia’s oldest listed automotive retail group that sells new and used cars, along with parts, repair and servicing of vehicles, etc.

The APE Offer

On the back of weak half-year results from Automotive Holdings Group, AP Eagers today proposed an all-scrip merger of 1 APE share for every 3.8 AHG shares owned.

The proposed merger implies a premium of 7.63% for AHG shareholders based on yesterday’s closing price of $1.78 on 4 April 2019.

Proposed Benefits

AP Eagers’ commercial rationale for the offer included the following:

  • Greater geographical portfolio diversification with exposure to all states and territories in Australia (besides the ACT)
  • Enhanced brand portfolio diversification representing 33 car brands, along with 12 truck and bus brands
  • Anticipated pre-tax cost synergies estimated at ~$13.5 million a year
  • Larger and more flexible balance sheet
  • Proven management expertise (AP Eagers’ management would take control).

AP Eagers’ pointed out that of the 33 car brands the proposed merger would stock, the combined group would have 26 of the leading car brands which accounted for over 95% of new vehicles sales.

Commentary

AP Eagers’ CEO Martin Ward commenting on the proposed merger said, “As AHG’s largest shareholder, and as a leader in the automotive retail industry with 100+ 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”.

Mr Ward further stated, “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.”

Rask Perspective

This is a well-timed or ‘opportunistic’ proposed merger from AP Eagers’ management on the back of weak half-year results from AHG who also forecast future pain. The timing of the merger probably shows part of the reason AP Eagers is Australia’s oldest listed automotive group.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclosure: At the time of writing, Andrew does not own shares in any of the companies mentioned.