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The proposed merger of two of Australia's largest automotive dealers has been conditionally approved by the Australian Competition and Consumer Commission (ACCC) this morning.
Combined, AP Eagers (ASX: APE) and Automotive Holdings Group (ASX AHG) will be Australia's largest car dealership business, with a market capitalisation of around $2.3 billion.
The ACCC only approved the merger following AP Eagers' divestment of its new car dealerships in the Newcastle and Hunter Valley region.
That business, the Kloster Motor Group, raised concerns for the ACCC as it believed that a merger of the two giants would result in anti-competitive behaviour in that region specifically.
The ACCC had no concerns regarding anti-competitiveness in any other region nationally.
AP Eagers announced the divestment of Kloster for $54 million in July, with the sale to the Tony White Group to be completed in November this year.
The ACCC says following the divestment of Kloster it has no more concerns about the merger.
"We were concerned that a combined AP Eagers and AHG would own about half of the 78 dealerships in the Newcastle and Hunter Valley region, and in metropolitan Newcastle, about three quarters of the dealerships that sell the top ten car brands," says commissioner Stephen Ridgeway.
"If we had allowed AP Eagers to combine its dealerships with AHG's in this region, the reduction in competition in that market may have meant consumers would pay more for new cars."
"Although enquiries can be made over the phone or online, consumers usually still need to visit a dealership to negotiate the best possible price on a new car."
"This limited ability to 'shop around' online to understand the actual price you would pay for a new car means it is important that customers have access to a range of competing dealers in their local area."
AP Eagers' application for ACCC approval is the first following reforms in 2017 to the merger authorisation process, which reinstated the ACCC's ability to consider applications for merger authorisation. Previously, applications for authorisation were made to the Australian Competition Tribunal.
Merger authorisation provides an alternative avenue for merger clearance to the informal merger review process, which is the most commonly used avenue for M&A in Australia.
The ACCC authorisation process is public. Where merger authorisation is granted, merger parties are exempt from the merger laws.
The two companies can now go ahead with their merger which is expected to result in the new company looking to diversify into newbusiness angles like ridesharing and subscription services.
The merger authorisation will take effect on 16 August 2019, which has greatly pleased AP Eagers' CEO Martin Ward.
"We are delighted with the ACCC's decision regarding the grant of merger authorisation," says Ward.
"In view of that decision, we encourage any AHG shareholders who are yet to accept our offer to do so in order to participate in the scale and synergy benefits afforded by the merger and any dividends approved by the AP Eagers board before the end of the offer period."
Existing AHG shareholders are set to own 25.5 per cent of the merged entity.
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