Caltex Australia (CTX) has finally confirmed that it trying to buy Woolworths’ (WOW) petrol station business, but media reports claim that BP is believed to be the frontrunner in a deal that will cost upwards of $1.6 billion.
The fact that BP could be in front means Caltex will now have to go all out to buy the Woolies stations to maintain its dominant share of the Australian (especially the NSW) service station and petrol markets.
If Caltex fails, it will lose hundreds of millions of litres a year to BP which has its own refinery and distribution networks in Australia.
Caltex said yesterday said it had made “a conditional and confidential proposal to Woolworths to acquire its fuel business and continue the successful fuel alliance.”
But there are no favours in business at this level. Woolies is out to get as much money as possible, and the petrol business is all about small margins spread over as many litres as possible in sales.
Caltex supplies the Woolworths stations with fuel and other oil based products. It will be the biggest loser if it is cheap and doesn’t top the BP price.
Caltex chairman Greig Gailey has already made it clear the company will be particularly disciplined in its approach to acquisitions in its core market given expectations of a shrinking fuels market due to improved fuel efficiency in the short term, and to the introduction of electric vehicles further down the track.
“Caltex will maintain financial discipline in this process and remains focussed on the creation of top quartile total shareholder returns, driven by profitable, capital efficient growth,” the company said yesterday.
But at the same time, Caltex can’t afford to give BP a head start, not without a big foreign parent (as it used to have with Chevron owning 50% of the group). BP has a big foreign parent wanting to maintain its sales as it confronts life after the Gulf disaster.
Caltex said any transaction "remains uncertain and is expected to take time to complete." It added it would update the market if there were any material changes to its existing wholesale supply arrangements with Woolworths.
Caltex and Woolworths operate 103 co-branded service stations across the country, while Woolworths has 530 service stations that made $4.6 billion in sales in 2015-16.
Woolies has sold its Home Timber and Hardware business to Mitre10 owner Metcash and is closing down its failed Masters hardware chain at a cost of well over $3 billion.
Shares in Caltex was down more than 4%, at $32.87, while Woolworths shares were up 0.4% at $24.36.
