Caltex Australia could lift its annual earnings per share by 3.4 per cent if it acquired Woolworths’ petrol business for 10.5-times earnings.

That’s the view from Macquarie’s equities research team on Monday morning, after running the numbers on potential M&A scenario.

Macquarie said a $1.36 billion deal would be 3.4 per cent earnings per share accretive for Caltex, based on 50 per cent debt/equity funding and $20 million in annual synergies.

Such a deal would see Caltex’s net debt increasing to 0.98-times earnings before interest, tax, depreciation and amortisation, and require the issue of 22 million new shares.

Macquarie research analysts run the numbers Woolworths' petrol, and what it could be worth for Caltex Australia.
Macquarie research analysts run the numbers Woolworths’ petrol, and what it could be worth for Caltex Australia.

“While the likelihood of a CTX acquisition of WOW Petrol business is relatively high given its alignment with the assets and existing supply agreements in place with WOW, such an outcome is not assured nor is it likely to come without conditions,” the analysts told clients.

“The ACCC has highlighted they will look closely into any potential acquisition in the petrol retailing market and have previously stated that their preference would be for a new player to take up the Woolworths network to at least maintain the current level of competition (though none appear to be interested).”

As Street Talk reported last week, Caltex is believed to be one of three parties in talks with Woolworths.

Caltex is the most logical buyer, given its existing relationship with Woolworths which covers redemption/loyalty programs and fuel supply at Woolworths’ 522 sites.

While Macquarie valued the Woolworths unit at $1.36 billion – or 10.5-times earnings before interest, tax, depreciation and amortisation – others expect the sale price to be closer to $1.6 billion.

UBS is advising Caltex through the talks, while Morgan Stanley is working for Woolworths.

Extracted from the Australian Financial Review.

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