[step:Show $A' \simeq A$, $B' \simeq B$, and $A' \cap B' \simeq A \cap B$ via the collar retractions]We exhibit deformation retractions.
From $A'$ to $A$: the map $H_B$ deformation retracts $V$ onto $A \cap B$. Extend $H_B$ to all of $A' = A \cup V$ by declaring it the identity on $A$: for $x \in A \setminus V$ and $s \in [0, 1]$, set the extended homotopy $\tilde H(x, s) := x$, and for $x \in V$ set $\tilde H(x, s) := H_B(x, s)$. On the overlap $A \cap V \subseteq A \cap B$, both definitions equal $x$ (the strong deformation retraction fixes $A \cap B$), so the two pieces agree there. Since $A$ and $V$ are closed and open respectively in $A'$, and $\tilde H$ is continuous on each, $\tilde H$ is continuous on $A'$ by the pasting lemma (applied using the cover of $A'$ by the closed set $A \setminus V$ and the open set $V$, or more simply by noting $\tilde H$ is the identity on the closed complement of $V$ in $A'$). This exhibits $A$ as a strong deformation retract of $A'$, so $A' \simeq A$ as topological spaces. In particular the inclusion $A \hookrightarrow A'$ is a homotopy equivalence and induces an isomorphism $\pi_1(A, x_0) \cong \pi_1(A', x_0)$.
Symmetrically $B' \simeq B$ via the extension of $H_A$ by the identity on $B$.
For the intersection, we compute set-theoretically:
\begin{align*}
A' \cap B' = (A \cup V) \cap (B \cup U) = (A \cap B) \cup (A \cap U) \cup (V \cap B) \cup (V \cap U).
\end{align*}
Since $U \subseteq A$ we have $A \cap U = U$, and since $V \subseteq B$ we have $V \cap B = V$. Thus $A' \cap B' = (A \cap B) \cup U \cup V$. Because $A \cap B \subseteq U$ and $A \cap B \subseteq V$, this simplifies to $A' \cap B' = U \cup V$.
Both $U$ and $V$ deformation retract onto $A \cap B$ via $H_A$ and $H_B$ respectively, and the retractions agree with the identity on $A \cap B$. We glue them: define $K: (U \cup V) \times [0, 1] \to U \cup V$ by $K(x, s) = H_A(x, s)$ for $x \in U$ and $K(x, s) = H_B(x, s)$ for $x \in V$. On the overlap $U \cap V$ — if any point lies there — we need the two definitions to agree. To ensure this cleanly, the standard approach is to shrink $U$ and $V$ so that $U \cap V = A \cap B$ (each strong deformation retraction fixes $A \cap B$ throughout, so on $A \cap B$ both maps are the identity homotopy). With this choice, $K$ is well-defined and continuous on $U \cup V$ by the pasting lemma applied to the open cover $\{U, V\}$ of $U \cup V$, and exhibits $A \cap B$ as a strong deformation retract of $U \cup V = A' \cap B'$. Hence $A' \cap B' \simeq A \cap B$, and in particular $A' \cap B'$ is path-connected.[/step]