Majority of takeover target AHG’s shares 'coming into APE hands'
The Australian Competition and Consumer Commission (ACCC) has begun to assess an application AP Eagers (APE) lodged for authorisation to acquire Automotive Holdings Group (AHG).
Competition concerns are high on the list of conditions APE acknowledges its takeover bid faces and is one of the reasons AHG has advised its shareholders to avoid rushing to sell their stakes.
Initial commentary focuses on vehicle sales concentration in regional centres such Newcastle being of interest to the ACCC, which is now seeking seeking submissions from interested parties as part of its public consultation.
AHG’s plea for shareholder caution appears to have fallen on some deaf ears, with APE stating in a stock market announcement that it is now in control of 51.3 per cent of its rival, up from 42.6 per cent yesterday.
The percentage is made up of 22.5 per cent gained from shareholders through acceptance instructions deposited into the institutional acceptance facility, which APE insists “sends a strong signal to the AHG board about their support for a merger of the two businesses”.
“To move beyond 50.1% so early in the offer period represents a massive vote of confidence in our merger proposal. In our view, this strongly signals a belief among those shareholders who have deposited acceptance instructions with the Acceptance Facility that both companies will be stronger together under our proven management expertise and track record of profitable growth,” AP Eagers CEO Martin Ward says.
“We encourage all of our fellow AHG shareholders to accept the offer so the full benefits of the merger, particularly the synergies can be realised.”
However, new AHG chair Richard England sees expressions of support as indicative.
“The strategic rationale of putting AHG and AP Eagers together is not in question, and never has been, and that is what some shareholders are signalling with their non-binding indications,” England says.
“As a Board, we will soon provide shareholders with our formal recommendation in the Target’s statement.
“The bigger question remains the relative share of value between the two sets of shareholders and the sharing of synergy benefits.
“An independent expert will also quantify fair value, and we see no benefit to shareholders formally making a binding acceptance of the offer at this time, especially as the offer remains open for over four months.”
AHG’s shares have risen from $1.78 just before the takeover announcement to $2.40 mid-afternoon.
Read AP Eagers’ rationale for the takeover, here
Meanwhile, the competition regulator finds itself on familiar ground.
“AP Eagers’ application is the first merger authorisation considered by the ACCC since reforms in 2017 restored the ACCC’s ability to consider applications for merger authorisation,” ACCC chair Rod Sims says.
“Under the new process, the application comes to the ACCC first rather than the Australian Competition Tribunal.
Under the new merger authorisation process, the ACCC may grant authorisation for a proposed merger if it is satisfied the merger is not likely to substantially lessen competition, or where the public benefits outweigh the detriments to the public.
This includes where the proposed merger does lessen competition.
The ACCC notes that APE and AHG are the nation’s two largest automotive retailers, with both supplying new and used cars, trucks and buses, as well as associated products and services such as car repair and servicing, authorised car parts, insurance and finance.
“The ACCC’s assessment will focus on the likely effects of the proposed acquisition on competition, and under the authorisation test the ACCC can also consider whether any public benefits likely to arise from the proposed acquisition would outweigh the public detriments,” Sims says.
APE’s application is available on the ACCC’s public register and submissions received during the consultation process will also be publicly available subject to confidentiality restrictions.
It explains that merger authorisation provides an alternative to the informal merger review process, which is the most common avenue merger parties use to seek the ACCC’s views on a proposed acquisition.
The authorisation process must follow formal steps set out in the Competition and Consumer Act, including that the ACCC must make a determination on the application within 90 days, unless the applicant agrees to extend the timeline.