The AP Eagers Ltd (ASX: APE) share price and the Automotive Holdings Group Ltd (ASX: AHG) share price have both started the week in the red after the Australian Competition and Consumer Commission (ACCC) voiced concerns over AP Eagers' proposed acquisition of its rival automotive retailer.
At the time of writing both companies' shares are down 3%.
What are the ACCC's concerns?
According to the ACCC's announcement, the competition watchdog has preliminary concerns about AP Eagers' proposed acquisition of Automotive Holdings and its impact on competition in new car retailing in the Newcastle/Hunter Valley region of New South Wales.
It advised that it is seeking further feedback from market participants about this proposed transaction, in particular regarding the Newcastle/Hunter Valley region.
The ACCC's acting chair, Delia Rickard, advised: "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. In metropolitan Newcastle alone, the combined company would operate 77 per cent of dealership sites selling the ten most popular brands."
The ACCC sees this as an issue as it doesn't believe local consumers "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."
However, outside this area the ACCC doesn't appear to have any concerns.
It advised that its preliminary view is that "the proposed acquisition is unlikely to substantially lessen competition for the supply of new cars in Melbourne, Sydney and Brisbane or nationally, the wholesaling and retailing of used cars, the acquisition of car dealerships or the supply and acquisition of finance and insurance products."
It is now seeking further submissions in response to the concerns outlined and is also investigating whether the proposed acquisition would reduce competition in the supply of authorised parts and the market for servicing of new cars in the Newcastle/Hunter Valley region.
The ACCC will make a final decision by July 26 2019, unless AP Eagers agrees to extend this period.
Whilst this news is a bit of a blow, the two companies could look to get around it by divesting some of their assets in the region. Failing that, they could look to overturn the decision in court like TPG Telecom Ltd (ASX: TPM) and Vodafone Australia are currently doing in respect to their potential merger.
