The Australian Competition and Consumer Commission (ACCC) has given the go ahead for the merger between AP Eagers Ltd (ASX: APE) and Automotive Holdings Group Ltd (ASX: AHG).
A.P. Eagers is Australia’s oldest listed automotive retail group, it has been going for over a century. It operates automotive dealerships across Queensland, South Australia, New South Wales, Victoria, Northern Territory and Tasmania. It has over 4,500 employees.
Car Dealership Merger Given The Go Ahead
The ACCC has conditionally authorised AP Eagers to acquire AHG following the commitment of AP Eagers to sell its existing car dealerships in the Newcastle and Hunter Valley region to a third party.
The Newcastle and Hunter Valley region was the only concern that the ACCC had – it didn’t think there was a problem nationally or in Melbourne, Sydney and Brisbane where there is sufficient competition from other dealerships and suppliers.
ACCC Commissioner Stephen Ridgeway said: “We were concerned that a combined AP Eagers and AHG would own about half of the 78 dealerships in the Newcastle and Hunter Valley region, and in metropolitan Newcastle, about three quarters of the dealerships that sell the top ten car brands.
“If we had allowed AP Eagers to combine its dealerships with AHG’s in this region, the competition in that market may have meant consumers would pay more for new cars.”
What Does This Mean For AP Eagers?
Well, the AP Eagers share price has risen 0.4% in early trade in response to the news. The company get back to planning the $13.5 million of synergies that is expected to come from combining the two businesses, although this figure may be a little lower without the divested Newcastle & Hunter Valley business.
AP Eagers CEO Martin Ward said: “We encourage any AHG shareholders who are yet to accept our offer to do so in order to participate in the scale and synergy benefits afforded by the merger and any dividends approved by the AP Eagers board before the end of the offer period.”
The merger is obviously a good thing for AP Eagers, or else it wouldn’t be doing it. However I’m not sure about the long term prospects of car dealerships with automated cars expected in the coming years. I’d rather invest in the reliable businesses in the free report below for my portfolio.
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