Automotive Holdings Group Limited

Change of Interests Under the Acceptance Facility in Progress:Automotive Holdings Group Limited (ASX: AHG) is Australasia’s largest automotive retailing and logistics group. The company recently announced that WFM Motors Pty Ltd, NGP Investments (No 2) Pty Ltd, NGP Investments (No 1) Pty Ltd, Sitil Management Pty Ltd, and N G Politis have increased their voting power in the company from 37.4690% to 38.8694%.

Takeover bid by A.P. Eagers Limited for AHG: Institutional Acceptance Facility (Acceptance Facility) has been established by A.P. Eagers Limited (AP Eagers) with regards to its off-market takeover bid for all the ordinary shares in Automotive Holdings Group Limited (AHG Shares) that are not already owned by it.

Offer Consideration: Under the terms of the Improved Offer, AHG Shareholders will receive 1 APE Share for every 3.6 AHG Shares that they hold, rather than the 1 APE Share for every 3.8 AHG Shares that was originally offered under the Initial Offer.

On 30 May 2019, the AP Eagers updated about the change of interests under the acceptance Facility and confirmed that as a percentage of the total number of AHG shares on issue, has changed from 60.3589% (as reported on 24 May 2019) to 61.8137%. 

Change of Interests (Source: Company Reports)

If AP Eagers acquires all the AHG Shares that it does not already own, non-APE AHG Shareholders would own approximately 25.5% of the shares in the Merged Group, when compared to approximately 24.5% of the total shares in the Merged Group under the Initial Offer.

Strong Balance Sheet: In case, APE successfully acquires 100% of the shares in AHG, AHG Shareholders will hold shares in a materially larger Merged Group. The balance sheet and financials for the merged entity will be in a better place than a "standalone" to face the challenges from the automotive retailing sector.  Additionality, the merged entity will be able to capitalise on any turnaround and growth opportunities available in the near future.
 

Estimated Numbers for Merged Entity (Source: Company Reports)

Significant synergies to be realised from such combination: In case of the 100% acquisition byAPE, it will reflect cost savings and synergy benefits to AHG shareholders which are likely to be achieved by the Merged Group. As per the analysis, if APE acquires all of the AHG Shares that it does not already own, the pre-tax cost synergies could be ~A$31.3 million per annum.


Estimated Synergies (Source: Company Reports)
 
Increased Operational Scale and Brand Diversification:The Merged Group will be a clear market leader in automotive retail in Australasia. The Merged Group is expected to enjoy the market share of ~11.9% of the new vehicles sales market in Australia. Both the companies have geographical footprints in terms of dealership which is complementary in nature. The merged entity will represent 33 car brands, which includes all the top 26 leading car brands. Expanded geographical reach and diversification in the brand portfolio are likely to provide a measure of protection against the financial impacts of decreasing revenues in any relevant State and to provide potential opportunities that arise from a market or from a scale.
 
Key Dates:

Key Dates (Source: Company Reports)
 
At the current market price of $2.870, the market capitalization for the stock stands at ~$968.34 million. Annual dividend yield for the stock stands at 5.58%. Looking at the historical price performance, the stock has gained an impressive return of 92.11% on YTD basis. In the last one-month and three months, the stock has generated a decent return of 22.18% and 38.39%, respectively. Currently, the stock is trading close to its 52-week high price of $2.935. Considering the estimated synergies for the combined entity, expanded footprints, brand portfolio expansion, etc, we are optimistic for this development and future growth of the Combined Entity.

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