The sale was made to address concerns by the regulator that adding the AHG dealerships to the Eagers business portfolio in Newcastle and the Hunter Valley region would vest too much market power in the combined group.
The merged group would control about half of the 78 dealerships in the area, according to the ACCC, and control about three quarters of the dealerships in Newcastle that sell the top 10 car brands.
As already reported, there were a number of objections to the likely detriment of the merger for consumers in the Hunter region including a forthright submission from Hyundai Motor Co Australia.
The sale of Klosters has now satisfied the ACCC and the merger can now proceed, subject to the sale of Klosters being concluded.
AP Eagers’ decision to sacrifice the Kloster Group, which has been regarded as one of the jewels in Eagers’ crown, was made in order for the bigger game to proceed.
Klosters’ turnover is about $400 million compared with a total turnover of about $4.1 billion for Eagers.
The reason AP Eagers chose to sacrifice APE dealerships – to address the issue of reducing its perceived market control of the region, and leave alone the dealerships joining the group from AHG – was that Eagers was not in a position to dispose of any of the AHG businesses because it does not own them yet.
The chief operating officer of Eagers, Keith Thornton, told GoAutoNews Premium: “The issue was that for us to give an undertaking to the ACCC, and to get a merger authorisation from the ACCC, we had to give a commitment on something that we owned and controlled rather than something we don’t own and control (at this point).”
Under the arrangement with the ACCC, the Kloster business, which controls all Eagers dealerships in the region, has been sold to the rapidly expanding Tony White Group.
The arrangement sees Eagers losing BMW, Ford, Honda, Hyundai, Mini, Mitsubishi, Nissan, Suzuki and Volkswagen passenger cars in Hamilton.
The Klosters business also controls the Cardiff Motor Group (Ford, Nissan, Honda, Hyundai and Volkswagen commercial) and the Highway Motor Group (Ford and Hyundai).
The complete portfolio is run as a single business and the complexity of trying to cherry pick brands to keep and brands to sell within the timeframe of the merger meant that everything had to go to Tony White in a single business entity.
Balancing the loss of the Kloster portfolio, AHG brings in the Bradstreet Group which runs the major part of its portfolio in Newcastle including Toyota, multiple Mazda sites, Audi, Holden, Honda, Isuzu Ute, Kia, LDV, Nissan, Subaru, Skoda and Volkswagen.
The AHG brand portfolio includes the Hunter Motor Group which includes Honda Subaru and Volkswagen in Maitland and Volkswagen commercial and Isuzu Ute in Rutherford.
The Tony White Group sells 25 car brands from 40 locations running from Cairns right down the east coast to Tasmania.
Mr Thornton said Eagers was “very comfortable” with the transaction with Tony White.
“We know him well and we also know the way he runs his businesses and the style of person he is,” he said.
“We were very conscious of making sure that those businesses and the staff went to a new owner who was aligned with our way of thinking. It is a great group.”
The sale of Klosters at a price of $54 million is due to be completed by November 1.
Meanwhile, in announcing its approval of the merger, the ACCC said the deal “did not raise concerns nationally, or in Melbourne, Sydney and Brisbane, where the overlap between the operations of AP Eagers and AHG is limited and there is sufficient competition from other dealerships and suppliers”.
But the regulator noted that “significant concerns were raised in the Newcastle and Hunter Valley region where AHG is AP Eagers’ closest competitor”.
ACCC Commissioner Stephen Ridgeway said: “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 10 car brands.
“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’ divestiture means there will be no increase in market concentration in the Newcastle and Hunter Valley region,” Mr Ridgeway said.
The key requirements of the divestiture undertaking include:
- the divestiture of AP Eagers’ new-car dealerships and related business sites in the Newcastle and Hunter Valley region;
- the approval by the ACCC of the proposed purchaser;
- the transfer of all necessary assets, agreements (including dealership agreements), licences, authorisations and personnel; and
- the appointment of an independent auditor to audit and report upon AP Eagers’ compliance with the divestiture undertaking.
Complying with the divestiture undertaking is also a condition of the authorisation.
By John Mellor
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