New Zealand petrol station owner Z Energy has capitalised on Chevron’s retreat from the Australasian fuel supply market, sealing a $NZ785 million ($734 million) deal that will give it control of almost half the country’s market for petrol, diesel and jet fuel.

In a deal revealed first by The Australian Financial Review‘s Street Talk online on Monday, Z Energy is buying 100 per cent of Chevron New Zealand, including 146 branded Caltex petrol stations, 73 truck stops, a 2 million-barrel inventory, 10 terminals and a lubricant sales and distribution business.

Z shares soared 22 per cent in Wellington as investors contemplated the increased dominance the former Shell business would secure in the New Zealand petrol and diesel market.

But the transaction has yet to get the green light from the Commerce Commission, amid warnings from some rivals and consumer groups that Z’s resulting 49 per cent share of the transport fuel market would give it power to influence prices.

Z chief executive MIke Bennetts said he was “confident there are strong grounds for clearance” from the competition regulator, insisting that the combination did not reduce competition, given competitive commercial markets and retailing markets.

The deal extends Chevron’s pull back from downstream oil refining and marketing activities in Australasia, having only last week sold its 11.4 per cent stake in New Zealand Refining Co, while in March it completed Australia’s largest ever block trade with a $4.73 billion exit from Caltex Australia. Its upstream exploration activities, including plans to drill in new frontier permits awarded late in 2014 by the New Zealand government, are not affected by the sales.

Z will finance the purchase through a mix of $NZ80 million of available cash, an additional $NZ540 million of dent and an underwritten pro rata equity raising of about $NZ185 million, to occur closer to the expected completion in late 2015, with the help of broker Goldman Sachs.

The deal, priced at 5.9 times estimated raw earnings in 2014, is expected to boost earnings for Z from day one. It is calculated to add 34 per cent to pro forma earnings per share ahead of synergies expected to amount to between $NZ15 million and $NZ25 million in terms of forecast earnings before interest, tax, depreciation, amortisation and fair value adjustments (EBITDAF) for fiscal 2017 and beyond.

Z is to operate two separate brands, Z and Caltex, and plans to continue its program of building new petrol stations on prime sites. However, use of the Caltex brand was only “transitional”, a presentation document said.

Mr Bennetts said the acquisition “is also a great fit with our longer-term market growth strategy”, because the scale of the combined operation would allow for expansion in the supply of biodiesel to a broader market.

Chevron New Zealand sold 1.765 billion litres of fuel in fiscal 2014, yielding revenue of $NZ2.235 billion and replacement cost EBITDAF of $NZ132 million. It had 21 per cent of the New Zealand transport fuel market, compared to Z Energy’s 28 per cent.

Extracted in full from Australian Financial Review.