Woolworths has outlined plans to sell its petrol retailing business to Britain’s EG Group for $1.73 billion, in a move that introduces a new player in the fuel distribution market.
The sale to EG, which was first foreshadowed by The Australian’s DataRoom column last month, is accompanied by a 15-year deal that covers fuel discounts and loyalty schemes and wholesale product supply from Woolworths’ FoodCo, Woolworths said late yesterday.
The move will allow Woolworths chief executive Brad Banducci to pull the trigger on a capital return, although the retailer is yet to finalise the details. At the same time it will deliver funds to invest in upgrading its supermarkets business.
Woolworths said 540-branded service stations would be included in the agreement.
EG ranks as one of the biggest players in petrol and convenience retail, with 4700 sites in Europe and across North America.
The deal comes after Australia’s largest supermarket operator shelved a $1.8bn sale of its petrol stations to BP after it was blocked by the Australian Competition & Consumer Commission last December over concerns that fuel prices might rise. BP officially abandoned the deal in June.
The Woolworths petrol network, which distributes Caltex branded fuel, is the nation’s second biggest franchise with about 24 per cent share of the market, according to ACCC figures. This is behind the Coles Shell network, which has a 26 per cent share, and compares to BP on 15 per cent.
Meanwhile, rising petrol prices helped cool subsequent talk of a sharemarket float for the business, which had been touted as a possible “Plan B”. Fuel margins have also been squeezed on the back of a falling Australian dollar.
Service station operator Viva Energy, which recently listed, closed at $2.22 per share yesterday, down from its mid-year listing price of $2.50.
“The Woolworths assets present a fantastic opportunity to further grow our international footprint,” EG founder and co-CEO Mohsin Issa said. EG was “committed to investing in the site network,” he added.
The transaction is subject to Foreign Investment Review Board approval. Completion is expected to occur in early 2019.
“Woolworths Group will consider a range of options for the use of proceeds, including capital management initiatives,” the company said in its statement.
In the past financial year earnings from Woolworths’ petrol business increased 7.1 per cent to $168 million.
EG Group is owned by private equity player TDR Capital and operates fuel retail brands Esso, BP, Shell and Texaco across its operations. Investment bank Citi is working for EG Group,
Meanwhile, Woolworths is eyeing other possible asset sales. This includes the Bruce Mathieson-backed ALH Group joint venture and discount department store Big W.
The loss-making Big W recorded a 2.2 per cent gain in same store sales for the quarter, and the supermarket giant has been moving to invest in the business in the hope of landing a buyer.
Woolworths last month posted total sales for its Australian supermarkets of $9.87 billion — up 1.9 per cent — while at its drinks business, led by Dan Murphy’s, comparative store sales rose 1.7 per cent. Its New Zealand supermarkets booked a 4 per cent lift in sales.
The sale comes as rival Wesfarmers prepares the $20bn demerger of Coles next month. Coles’s growth should help sell the demerger to investors, as new boss Steven Cain talks up the performance of the supermarket business. Mr Cain has signalled he is willing to consider an exit from his fuel business.
Extracted from AFR