US oil major Chevron’s $4.8 billion exit from Caltex Australia will not alter the local company’s strategy, but chief Julian Segal says it removes a “complexity” in distributing franking credits to shareholders.
Chevron’s sale of its 50 per cent stake in Caltex via a block trade — the biggest in Australia’s history — will be wrapped up before the market opens today, with the stock to settle on Thursday.
Mr Segal said the fact the stock had sold so quickly was an overwhelming endorsement of the company’s strategy.
“We have been pursuing a very clear strategy … this transaction has no impact on the strategy, so we will continue as business as usual,” he said.
The Caltex head said there were good opportunities for Caltex to grow its core business.
“We have been very successful in investing in our service station network … we have been successful in investing in our infrastructure … we will continue to do that,” he said. “We have also shown we are capable of good bolt-on acquisitions, such as the Queensland fuel group.”
While the company has done some smaller and medium-sized acquisitions, Mr Segal said there was room for bolt-on acquisitions in the $100m range and a “transformation” acquisition in its core business.
“Caltex is in a very good position in realising growth opportunities,” he said.
The Caltex shares were sold to local and international investors through a bookbuild priced at $35 per share, a 7.6 per cent discount to the last traded price. It was carried out on Friday evening through Goldman Sachs, who is the sole underwriter.
It is understood Australian Super took a sizeable holding and eight investors accounted for half of the stake sold.
Mr Segal said that because there had been market speculation about Chevron’s exit for some time, Caltex had considered that possibility before Friday’s sale. “Like any responsible company, we considered the implication of that possibility and there are no material impacts of that sale,” he said.
“We have been running this company as an independent company listed on the Australian Securities Exchange, with strong governance. We have been the originators of our strategy here in Australia and executing it here in Australia, so I don’t think there is any impact of this transaction on the way we run the business.”
Mr Segal said the board would meet in the next few weeks to discuss the transaction, given three of the company’s eight directors were Chevron appointees.
Caltex last year successfully completed its complex closure of the Kurnell refinery in Sydney, changing its focus to importing, marketing and selling fuel.
Caltex’s chief financial officer Simon Hepworth said new investors were attracted to Caltex because it had been open and clear about its strategy, which had been well articulated.
“The closure of Kurnell and the exposure to a single supply chain has significantly improved the company’s free cashflow capability and balance sheet capacity,” he said.
“The next phase of the strategy is the application of that free cashflow.”
Mr Hepworth said the $1.1bn worth of franking credits Caltex had available were obviously attractive to shareholders.
“I acknowledge that Chevron leaving the register removes a significant complexity in the efficient return of that capital to shareholders.
“As an objective our target is top-quartile shareholder returns and we see investment for growth as being a key component of that,” he said.
“We have also been clear that if those growth opportunities don’t exist, we will consider any capital management initiatives as appropriate.”
Extracted in full from The Australian.