AP Eagers Limited

APE Details

ACCC Expressed its Preliminary View:AP Eagers Limited (ASX: APE)is among the largest automotive retailers in Australia. APE is engaged in the business of supplying new and used cars, trucks and buses, and associated products and services including car repair & servicing, authorised car parts, insurance and finance, etc. Their operation activities are spread in Brisbane, Melbourne, Sydney and the Newcastle/Hunter Valley region of NSW. APE holds 28.84% of AHG’s listed securities as at 5 April 2019.

Takeover bid by A.P. Eagers Limited for AHG:Institutional Acceptance Facility (Acceptance Facility) has been established by AP Eagers with regards to its off-market takeover bid for all the ordinary shares in AHG Shares that are not already owned by it. As per the Improved Offer, AHG Shareholders will be receiving 1 APE Share for each 3.6 AHG Shares held by them, rather than 1 APE Share for each 3.8 AHG Shares that was initially offered.

Australian Competition & Consumer Commission (ACCC), recently had expressed its preliminary concerns about APE’s proposed acquisition of the shares in AHG which are not already owned and its impact on competition in new car retailing segment in the Newcastle/Hunter Valley region of NSW. As per ACCC, the combined entity of APE and AHG will account for ~46% of new car dealership sites in the Newcastle/Hunter Valley region, including those for the ten most popular brands, and runs 54% of the dealership sites selling those brands. In metropolitan Newcastle, the combined will account for 77% of dealership sites selling the ten most popular brands. ACCC was of the view that the local users usually resist traveling beyond the Newcastle/Hunter Valley region to purchase a new car, hence, it would be hard to search a final price for a car without visiting a dealership. APE was looking for merger authorisation process on the basis that the proposed acquisition does not substantially lessen competition.

Recent Developments:

(1) On 24 June 2019, ACCC published a market feedback letter mentioning its preliminary views and summarising submissions received by then. The preliminary view of ACCC is that the proposed acquisition by APE is not expected to significantly reduce the 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. Further, ACCC added that it will analyse the impact of concentration on the size of discounts users could attain while buying new cars in the Newcastle/Hunter Valley region.

Acknowledging ACCC’s preliminary views, APE will be continuing to review it. The geographies with overlapping similar business activities for the two groups, including Newcastle and the Hunter Valley, will continue to be choice and competition.

 (2) APE, recently, published a notice, related to its off-market takeover bid for all the ordinary shares in AHG that are not already owned by it. APE updated that as on 11 June 2019, the aggregate number of AHG Shares (expressed as a percentage of the total number of AHG shares on issue), under the Acceptance Facility and in which AP Eagers has a relevant interest is 60.5059%.

The following table identifies separately and in aggregate the change (corrected as set out below) in those categories since 30 May 2019, being the date of the previous notice given by AP Eagers for this purpose:


Change of Interests (Source: Company Reports)

Stock Recommendation: The stock has gained around 77.72% returns in the past six months and is trading at PE multiple of 19.48x with an annual dividend yield of 3.6%. Hence, considering the aforesaid facts, ACCC’s preliminary views on not reducing competition significantly for new car retail segment via merger along with seen price movement in the past few months, we give a “Sell” recommendation on APE at the current market price of $9.840 (down 2.863% on 24 June 2019) and suggest investors to book the profit at the current levels.


APE Daily Chart (Source: Thomson Reuters)

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