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The possibility for localised anti-competitive impacts following the proposed merger of two of Australia's largest car dealers has raised a red flag for the Australian Competition and Consumer Commission ('ACCC').
AP Eagers (ASX: APE) and Automotive Holdings Group (ASX: AHG) are currently in the final stages of a proposed merger; but they require ACCC approval before it can be completely signed off.
The ACCC has today raised that it has "preliminary concerns" that a merger of the two giants could have an impact on competition in new car retailing in the Newcastle and Hunter Valley region of New South Wales.
"A combined AP Eagers and AHG would operate 46 per cent of new car dealership sites in the Newcastle/Hunter Valley region, including those for the ten most popular brands, and runs 54 per cent of the dealership sites selling those brands," says ACCC acting chair Delia Rickard.
"In metropolitan Newcastle alone, the combined company would operate 77 per cent of dealership sites selling the ten most popular brands."
"We believe that local consumers generally don't travel beyond the Newcastle/Hunter Valley region to buy new cars, and it is difficult to find out the final price for a car without visiting a dealership."
If the deal goes through the merged group of two of Australia's largest automotive dealers will have a market capitalisation of $2.3 billion, and existing AHG shareholders would own 25.5 per cent of the new entity.
AP Eagers has previously indicated that a merger of the two companies could result in the merged entity looking at new business angles like ride sharing and subscription services.
The watchdog says that the merger is unlikely to impact competition in Melbourne, Sydney, or Brisbane, and is unlikely to impact the wholesaling and retailing of used cars, the acquisition of car dealerships or the supply and acquisition of finance and insurance products nationally.
In response to the ACCC's conerns, AP Eagers has said that it does not believe that the merger will result in the lessening of any competition.
"Even in the few geographic areas where the activities of the two groups overlap, including Newcastle and the Hunter Valley, it is AP Eagers' view that there will continue to be choice and competition," says AP Eagers in a statement.
"AP Eagers will continue to assess its options to maximise the prospects of receiving merger authorisation for the Transaction. It believes it is well advanced in addressing the issues identified by the ACCC."
AP Eagers' application to the ACCC is the first to use the merger authorisation process introduced in 2017 in reforms to the Competition and Consumer Act which restored the ACCC's ability to consider applications for merger authorisation.
Under this new process the ACCC may grant authorisation for a proposed merger if it is satisfied that the merger is not likely to substantially lessen competition, or where the public benefits outweigh the detriments to the public.
Shares in AP Eagers are down 2.17 per cent to $9.91 per share at 10.34am AEST.
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