Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In my prior <a href="https://www.smartkarma.com/insights/ahg-ap-eagers-smart-carma" target="_blank">insight</a>, I suggested "adjusting the terms to 3.5-3.6 AHG shares for every APE share - or $2.41-$2.47/share based on APE's last close - may be needed to get this over the line."
This is exactly how it played out.
<a href="https://www.smartkarma.com/entities/4636" target="_blank">Ap Eagers Ltd (APE AU)</a> has improved the consideration to 1 APE share for every 3.6 <a href="https://www.smartkarma.com/entities/9266" target="_blank">Automotive Holdings (AHG AU)</a> shares, from 3.8 shares. This compares to the one-year average, prior to the initial offer, of 3.5x.
AHG's board has unanimously <a href="https://www.asx.com.au/asxpdf/20190508/pdf/444xvsh936wvw5.pdf" target="_blank">recommended</a> the improved Offer.  The Offer is also now <a href="https://www.asx.com.au/asxpdf/20190508/pdf/444yl23tzq9bd3.pdf" target="_blank">free</a> from the market fall condition and APE has waived the MAC conditions, once a merger authorisation from the ACCC comes into force - provided no breach of the MAC occurs beforehand.
The <a href="https://www.asx.com.au/asxpdf/20190508/pdf/444yn1xnxwj8p4.pdf" target="_blank">target statement</a> is expected to be sent to AHG shareholders on or before the 17 May. The current closing date for the Offer is the 16 September.
I recommend shareholders take the deal. As per the most recent tally made public, APE's <a href="https://www.asx.com.au/asxpdf/20190426/pdf/444k2mk2tccd7t.pdf" target="_blank">acceptance facility</a> has collected 22.49% of shares out - reportedly including Perpetual and Argo Investment's stakes - which together with its 28.84% holding takes APE above the key 50% threshold.
Australia's car dealership industry is highly fragmented and competition is fierce - those tough trading conditions are again highlighted in today's The West Australian <a href="https://thewest.com.au/business/rich-list/wa-rich-list-2019-humble-car-magnate-john-hughes-wealth-takes-a-tumble-in-tough-times-ng-b881189888z" target="_blank">article</a> on John Hughes, an iconic figure in Perth, and his privately run car dealership.
And recently <a href="https://www.fcai.com.au/news/index/index/year/all/month/all/article/566" target="_blank">announced</a> new vehicle sales by the Federal Chamber of Automotive Industries show an 8.9% decline in April compared to the same period last year, and the 13th consecutive month of declining car sales.
To play the back-end, scale is key and combined, APE (5.2%) and AHG (6.7%) would have a market share of ~12% of new vehicles dealership market in Australia. This should not raise competition concerns with the ACCC on a national level.
The merged AHG/APE was expected to exact pre-tax cost synergies (according to APE) of $13.5mn annually, a number that is expected to improve with the benefit of full due diligence and an integration plan.
I estimate the gross/annualised spread at 3.7%/11.7% assuming a conservative closing date in early September.

In my prior insight, I suggested "adjusting the terms to 3.5-3.6 AHG shares for every APE share - or $2.41-$2.47/share based on APE's last close - may be needed to get this over the line."
This is exactly how it played out.
Ap Eagers Ltd (APE AU) has improved the consideration to 1 APE share for every 3.6 Automotive Holdings (AHG AU) shares, from 3.8 shares. This compares to the one-year average, prior to the initial offer, of 3.5x.
AHG's board has unanimously recommended the improved Offer.  The Offer is also now free from the market fall condition and APE has waived the MAC conditions, once a merger authorisation from the ACCC comes into force - provided no breach of the MAC occurs beforehand.
The target statement is expected to be sent to AHG shareholders on or before the 17 May. The current closing date for the Offer is the 16 September.
I recommend shareholders take the deal. As per the most recent tally made public, APE's acceptance facility has collected 22.49% of shares out - reportedly including Perpetual and Argo Investment's stakes - which together with its 28.84% holding takes APE above the key 50% threshold.
Australia's car dealership industry is highly fragmented and competition is fierce - those tough trading conditions are again highlighted in today's The West Australian article on John Hughes, an iconic figure in Perth, and his privately run car dealership.
And recently announced new vehicle sales by the Federal Chamber of Automotive Industries show an 8.9% decline in April compared to the same period last year, and the 13th consecutive month of declining car sales.
To play the back-end, scale is key and combined, APE (5.2%) and AHG (6.7%) would have a market share of ~12% of new vehicles dealership market in Australia. This should not raise competition concerns with the ACCC on a national level.
The merged AHG/APE was expected to exact pre-tax cost synergies (according to APE) of $13.5mn annually, a number that is expected to improve with the benefit of full due diligence and an integration plan.
I estimate the gross/annualised spread at 3.7%/11.7% assuming a conservative closing date in early September.

Automotive Holdings

AHG & AP Eagers - Even Smarter Carma