Global fuel giant BP has edged ahead in the race for Woolworths’ $1.6 billion-odd petrol station portfolio.

Street Talk understands BP has its nose in front of rival bidder Caltex Australia, with the latter reconsidering its position following the submission of indicative bids and feedback from the sell-side last month.

Sources said Woolworths and its team were spending a lot of time with BP trying to work through issues around the retailer’s loyalty program, its 4¢ a litre petrol discount scheme and their respective convenience strategies.

A key talking point is expected to be BP’s contractual relationship with Virgin Australia’s Velocity Frequent Flyer program. Velocity cardholders earn points on fuel and other purchases at BP stores, while Woolworths has a relationship with Virgin’s arch rival Qantas.

The talks are said to be less frequent over at Caltex, which has UBS in its corner.

A BP spokeswoman declined to comment.

Whoever gets the nod as preferred buyer – assuming the auction goes down that path – will have to pass muster with the Australian Competition and Consumer Commission. That’s an issue for the buyer and its lawyers, rather than Woolworths.

ACCC boss Rod Sims has made it clear that the deal – or non-deal as it is at the moment – is firmly on his radar and all parties involved in the auction understand the reality that no matter who wins, there will be some sites to divest. Such is the nature of fuel retailing.

Woolworths’ up-for-sale network, which includes about 500 branded Woolworths stores and about 92 Caltex sites branded as Star Mart convenience stores, sells about 4 billion litres of fuel and analysts estimate it generates $130 million to $150 million of earnings before interest and tax.

Competition looks like a bigger issue for Caltex than BP – although the regulator is likely to scour the market region-by-region. IBISWorld estimates Woolworths has 21.6 per cent of the retail fuel market, while Caltex has 16.8 per cent and BP Australia 11.1 per cent.

Extracted from Australian Financial Review.

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