Vehicle retailer AP Eagers says it wants to take the wheel of rival Automotive Holdings Group and create a $2.42 billion company capable of handling the transition to electric and automated vehicles.
AP Eagers, currently AHG's largest shareholder with 29 per cent, said on Friday it had offered one share for every 3.8 AGH shares.
The offer is worth $1.92 per share, representing a premium of 7.63 per cent to AHG's based on Thursday's closing prices.
AGH has advised its shareholders to take no action until it digests APE's bidder's statement and makes a recommendation in due course.
Shares in AHG were trading 14 per cent higher at $2.03 at 1231 AEDT, still more than 40 per cent lower than a year ago.
AP Eagers' shares were 6.87 per cent higher at $7.78 at the same time, having climbed 37 per cent from December's four-year low of $5.70.
AP Eagers chief executive Martin Ward said the proposed deal would bring together two complementary businesses to better weather new electric and automated vehicle markets, declining new car sales in Australia and increased regulation around financing.
"The key message today is we believe we'll be stronger together," Mr Ward told AAP.
Mr Ward acknowledged APE's franchise structure was aligned with fortunes of manufacturers, who have been hit by falling vehicle sales and the prospect of integrating new products such as electric and automated vehicles.
But he said a merger now would ride a wave of industry cost cutting.
"Up until three years ago none of our manufacturers were looking at taking costs out," Mr Ward said.
"Now we're seeing manufacturers not only willing to let retailers take costs out, but are aggressively looking for them to do so".
Shares in AHG have slipped more than 50 per cent from their historic high of $4.82 in August 2016, bottoming out at a near decade-low of $1.22 in January after flagging a $223 million writedown against its struggling franchised and refrigerated logistics businesses.
Acting AHG chair John Groppoli said on Friday the board strongly believed in the company's underlying growth prospects, and he advised shareholders to take no action on APE's offer.
