Woolworths is believed to be considering an initial public offering as a Plan B for its petrol station portfolio if it can’t convince the competition watchdog to allow a $1.8 billion sale to energy powerhouse BP to proceed.
Caltex makes strong profits supplying fuel to the Woolworths petrol station sites, potentially as much as $150m annually.
The thinking is that once Woolworths has locked in an attractive deal with a fuel supplier to those stores, it could then float the assets or offload them to private equity.
The current thinking is that an IPO is the more likely possibility rather than a private equity sale, despite Kohlberg Kravis Roberts, PetroChina and potentially other parties being on the edges.
The move could see a new $1.8 billion entity on the boards and would place Woolworths in a similar category to its rival Wesfarmers, where both groups have been busy spinning off assets.
With Wesfarmers, of course, it is the $20bn demerger of its Coles supermarkets business, but the general thinking around the market is that more spin-offs of other assets such as Coles’ pubs or Target, Officeworks and Kmart could also be on the charts, and Woolworths may demerge its Big W department store business or its pub assets as well.
It comes as the $35bn energy sector remains in play, as Vitol plans a sale of its $2bn-plus Viva Energy business.
The understanding is that Vitol and its Middle Eastern backers may offload about half of the company to equity investors.
As part of the non-deal road show for Viva Energy, prospective institutional investors have been told that earnings growth could come through acquisitions.
The group makes $650m in earnings before interest, tax, depreciation and amortisation and about $350m of annual net profit. It is thought that Viva Energy is worth about $6.5bn, including debt.
BAML and Deutsche are on the ticket for Viva Energy after floating its real estate assets two years ago, and the deal will be lucrative for the banks, being one of the largest IPOs mooted for this year.
Caltex is also believed to be exploring future options with its advisers, which include UBS.
The fuel company faces the dilemma of leaving its core business too exposed to structural change with the introduction of electric car if it makes a move like spinning off its real estate assets.
As reported by this column last week, Canadian convenience store leader Couche-Tard is also circling Woolworths’ petrol stations after Morgan Stanley launched a formal process to find buyers for about 230 stores in its portfolio.
This is in an effort to appease the Australian Competition & Consumer Commission to ensure the deal with BP proceeds.
The ACCC has taken exception with an earlier planned sale of the 531 petrol stations Woolworths owns to BP, arguing it would lessen competition and have an impact on petrol pricing.
With the discussions surrounding the deal stretched out for more than a year, both parties signalled they were prepared to offload some of the service stations, although the ACCC could still take exception to the transaction.
First-round bids for part of the Woolworths petrol business were due this month.
Couche-Tard, which bid for the assets, operates independent convenience stores in the US and Europe as well as dominating the Canadian market. It has about 15,000 stores globally. An acquisition of the Woolworths petrol stations would be its first foray into Australia.
Extracted from The Australian Business Review