Shares in listed care dealer, AP Eagers surged more than 25% yesterday after it revealed had cut 1,200 jobs as well as lopping other its costs as car sales slump due to the economic shock and lockdowns generated by the coronavirus pandemic.
But the problem for AP Eagers was its expensive all paper takeover of rival Automotive Holdings last year for $2.3 billion.
The company, which has been open for business during the lockdown, told the market on Thursday that the job cuts had been a “difficult but necessary” move in response to the decline in activity, and would save the company about $6 million a month.
The shares surged more than 25% to $5.15, lifting its market value to $1.32 billion from $999.5 billion on Wednesday and repairing the fortune of major shareholder, Nick Politis (the big cheese at Easts Rugby League club in Sydney). He controls 27% of the company.
The company’s problem is the takeover of its major listed competitor, the Perth-based Automotive Holdings late last year in a $2.3 billion deal.
That boosted the value of the combined company to more than $3.6 billion on October 1. Mr. Politis’ 27% stake was valued at $980 million at that date.
While it can be argued that it is unfair to criticise over the deal, APE launched the bid knowing car sales had been falling for more than a year. They still are falling, but the driver now isn’t just weak consumer demand, but the impact of the COVID-19 virus and the lockdowns imposed to halt its spread.
At yesterday’s close of $5.14 his stake was worth more than $350 million – still a lot of money but not nearly $1 billion.
AP Eagers said it was taking steps to retain as many of its 8,200 remaining employees as possible, and had adopted a temporary rostering system across most of its operations.
The company says it is applying for the JobKeeper program announced by the federal government to preserve employment, and expressed confidence that a significant proportion of its workforce would be eligible for it.
The company has also reached agreements with landlords for waivers or deferrals on more than 50% of its lease commitments over the next 3 months.
While car sales in the first three months of the year down 11% (and 18% in March), AP Eagers did not refer to the impact on new car sales in its market update to the ASX. New car sales data for April will be released next week.
“While the impact of the COVID-19 pandemic has been severe on the automotive retail industry, AP Eagers has responded swiftly and pre-emptively to meet the unprecedented challenges caused by the ongoing health and economic crisis,” AP Eagers CEO Martin Ward said in the statement.
“The duration and depth of COVID-19’s impact on our business remains uncertain but with strong foundations, decisive measures to preserve liquidity and the support of all our stakeholders, we are confident of overcoming this global pandemic and rebounding quickly,” he said.
