Fuel retailer Caltex could consider a break-up of the company and hive off its convenience division as Canada’s Couche-Tard weighs whether to lift its $8.6 billion takeover bid.

Caltex rejected Couche-Tard’s $34.50 offer on Tuesday but left the door ajar for its Canadian suitor to return with a higher price after offering limited due diligence, including meetings with its management team.

One solution could be a break-up of the Sydney-based company involving the sale of its convenience stores to Couche-Tard, with Caltex keeping the highly regarded fuel supply business.


“We see a potential meeting of interests in the sale of shop convenience operations together with an agreement for the sale of fuel under an agency arrangement,” Credit Suisse analysts said on Friday. “Operationally, Caltex would retain the benefits of fuel vertical integration, whilst monetising some of the potential convenience upside. The ball would seem to be in Couche-Tard’s court as to whether that outcome would be attractive.”

The Quebec-based convenience store giant has yet to respond after its boosted $34.50 offer was rejected by Caltex just weeks after an initial $32 a share bid was also rebuffed by chairman Steven Gregg.

Pursuing such a deal could be in the best interests of shareholders, according to the broker.

“With Caltex continuing to emphasise the value of vertical integration into fuel retailing, we believe that the sale of shop convenience operations together with an agreement for the sale of fuel under an agency arrangement might achieve a good outcome for Caltex shareholders,” Credit Suisse said.

Couche-Tard probably needed to boost its bid to $38 a share to secure a deal, JP Morgan said, and noted the distribution of a $850m pile of franking credits would become an increasing focus for investors.

Part of Couche-Tard’s plans to pay a special dividend of up to $8.41 a share to release $830m of franking credits, boosting the deal value by up to $3.61 per share.

However, Caltex estimates shareholders would gain about $1.66 per share — or half of Couche-Tard’s assessment — based on a superannuation fund shareholder being taxed at 15 per cent.

“Caltex has long had a large franking credit balance, yet the company appeared to have a casual rather than urgent approach to redistribution of franking credits back to shareholders.

“That has changed with the commencement of CFO Matt Halliday in April 2019,” the broker said.

Caltex shares rose 0.4 per cent to $34.51, just 1c over Couche-Tard’s offer price.

Extracted from The Australian