By Valerina Changarathil
Eagers Automotive’s $1bn bet on a Canadian dealership – backed by soon-to-be stakeholder and partner Mitsubishi Corporation – is a “strategically significant step”, says Wilson Asset Management’s senior equity analyst Sam Koch.
The investment will give Eagers a 65 per cent stake in CanadaOne, with the target’s founder Pat Priestner holding the remaining 35 per cent.
“Canada’s new vehicle market is roughly 50 per cent larger than Australia’s and offers structurally higher margins, Mr Koch told The Australian.
“Backed by strong OEM partnerships and the support of key stakeholders, including Mitsubishi, Nick Politis, and Pat Priestner, Eagers is well-positioned to consolidate both markets and drive accelerated earnings growth,” he said.
Eagers is raising $502m from investors at a discounted $21 per share to support the deal, with some funds coming from Mitsubishi Corporation’s placement and investment deal, also announced on Wednesday.
Mitsubishi is buying a 20 per cent stake in Eagers’ easyauto123 pre-owned car business in Australia and NZ – including an indirect interest in Eagers’ majority shareholding in Carlins Automotive Auctioneers – for $70m, subject to approvals. Both partners have also inked a separate deal for Mitsubishi to invest in Eagers via a $50m placement at $18 per share.
All up, the CanadaOne deal is being funding via $386m in exchangeable Eagers’ shares issued to Mr Priestner and the $502m equity raising, the $50m Mitsubishi placement and its $70m stake investment, and $108m from existing debt and cash reserves.
Mr Priestner will hold a 7.1 per cent stake in Eagers following the deal and have an option to buy a 5 per cent stake in easyauto123.
Shares in Eagers entered a trading halt at $29.32.
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