The proposed $2.3 billion takeover by AP Eagers (APE) for Automotive Holdings (AHG) – the country’s two biggest car dealers – is in trouble with the competition regulator, the ACCC.
AP Eagers is AHG’s largest shareholder with a 28.8% stake and in April launched the all-scrip takeover offer for the remaining shares.
If approved, the combined company would command 12% the entire new vehicle sales market in Australia.
APE currently owns or controls around 60.5% of AHG’s issued shares, both directly held – 28.8%, through some acceptances directly and through shares accepted into a special facility that can be reversed if the deal is called off.
The problem is not with the deal as a whole (the ACCC is happy nationally) but in the level of competition in the Newcastle-Hunter valley region of NSW
In a statement released yesterday the Commission said it “has preliminary concerns about AP Eagers’ proposed acquisition of the shares in Automotive Holdings Group (AHG) (ASX: AHG) that it does not already own, and its impact on competition in new car retailing in the Newcastle/Hunter Valley region of New South Wales.
The ACCC is currently assessing an application for merger authorisation from automotive retailer AP Eagers.
“The ACCC is seeking further feedback from market participants about this proposed transaction, in particular regarding the Newcastle/Hunter Valley region,” ACCC Acting Chair Delia Rickard said in the statement.
“A combined AP Eagers and AHG would operate 46 percent of new car dealership sites in the Newcastle/Hunter Valley region, including those for the ten most popular brands, and runs 54 percent of the dealership sites selling those brands. In metropolitan Newcastle alone, the combined company would operate 77 percent of dealership sites selling the ten most popular brands.”
“We believe that local consumers generally don’t travel beyond the Newcastle/Hunter Valley region to buy new cars, and it is difficult to find out the final price for a car without visiting a dealership,” Ms. Rickard said.
The Commission said its preliminary view is that the proposed acquisition is unlikely to substantially lessen competition for the supply of new cars in Melbourne, Sydney and Brisbane or nationally, the wholesaling and retailing of used cars, the acquisition of car dealerships or the supply and acquisition of finance and insurance products.
“We are now seeking further submissions in response to the concerns outlined in our market feedback letter, and will continue to examine what effect this level of concentration would have on the size of discounts customers could obtain when buying new cars in the Newcastle/Hunter Valley region,” Ms. Rickard said.
The ACCC is also investigating whether the proposed acquisition would reduce competition in the supply of authorised parts and the market for servicing of new cars in the Newcastle/Hunter Valley region. It is also seeking submissions about whether a divestiture would address potential competition issues in the Newcastle/Hunter Valley region,” the Commission said.
In a statement issued after the ACCC letter was released, AP Eagers claimed the deal would not cause any problems.
It said it would review the regulator’s preliminary views, but believed the merger would “not substantially lessen competition in any market”.
“Even in the few geographic areas where the activities of the two groups overlap, including Newcastle and the Hunter Valley, it is AP Eagers’ view that there will continue to be choice and competition,” the company said.
The ACCC thinks otherwise.
