Petrol stations and fuel networks are set to maintain their status as the hottest properties in Australian retail in 2020, as a potential rival bidder emerges for Caltex Australia following a suite of deals in the sector last year.
Bloomberg reported on Tuesday that UK-based EG Group was considering entering the fray with a bid to rival Alimentation Couche-Tard’s $8.6bn offer for Caltex Australia, potentially putting the company at the centre of a bidding war.
The potential emergence of a new bidder sent Caltex shares up 69c, or 2 per cent, to close at $35.05 on Tuesday, comfortably above the $34.50 on offer from Couche-Tard, which initially offered $32 a share.
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If an overbid emerges it would cement fuel networks and convenience stores, and the valuable real estate they occupy, as the hottest properties in Australian retail following a frenzy of deal-making in 2019.
EG Group paid $1.7bn for Woolworths’ network of 540 petrol stations and convenience stores in early 2019 to enter the local market.
Viva Energy, which operates the Shell brand in Australia, mopped up the wholesale arm of Liberty Oil in December, after the ACCC decided against intervening on competition grounds.
Caltex sold 25 high value mostly inner-city petrol stations as development properties for $136m to Woolworths and property developer Oliver Hume, and is mulling a spin-out of a half stake of another 250 service stations into a new listed property trust this year.
Charter Hall snapped up 49 per cent of 225 BP fuel stores in an $840m sale and leaseback property deal.
And US oil and gas giant Chevron made a surprise re-entry into the space in December in a $425m deal to take over Puma Energy’s commercial and retail fuels business, including its network of 360 petrol stations.
It is that last transaction that has thrown doubt over Caltex Australia’s outlook, given Chevron wants its Caltex brand back for Australian use, forcing Caltex Australia to return the venerable Ampol fuel station brand onto Australian streets over the next few years.
That transition, almost certainly to be followed by Chevron’s resumption of the Caltex brand for its new Puma outlets, will cost Caltex Australia about $165m, although it will save $18m to $20m in licensing fees after the changeover.
It has already raised questions over Caltex’s contention that Couche-Tard’s bid undervalues its stock given that, although the Ampol name still undoubtedly has strong recognition among older Australians, it has been absent from the market for about 20 years.
S&P Global Ratings already has Caltex Australia on a negative outlook over weak market conditions, and S&P noted the loss of the Caltex brand would likely intensify competition in the fuel and convenience store sector, saying Caltex risked losing market position if the changeover went awry.
Although Bloomberg said EG Group had not made a final decision on whether to bid, the suggestion it was mulling an offer runs counter to that view and the UK-based group almost certainly has a strong insight into Caltex’s Australian business.
Its Australian operations are helmed by former Caltex Australia strategy and business development boss Mike McMenamin, who left the company in 2015 before taking a succession of consulting roles.
Like Couche-Tard, EG Group would likely need Foreign Investment Review Board approval to close the deal.
Extracted from The Australian