A weaker than expected end to 2019 at Caltex Australia’s refining business may have made it harder for the takeover target to extract a sweeter bid from its Canadian suitor Alimentation Couche-Tard especially with no direct rival in sight.

As Caltex’s top management team led by chief executive Julian Segal kicked off detailed presentations to their counterparts at the giant convenience retailer in Sydney, the fuels supplier advised of a further downgrade in its refining profits for 2019.

The presentations taking place at the CBD offices of Caltex’s legal adviser Freehills, which lasted over eight hours on Thursday, will give Couche-Tard access to information not available to the public.

The pair entered into a non-disclosure agreement ahead of the first day of the briefings. They are expected to continue on Friday and intended to allow the Canadian firm access to data that could support a potential increase of its initial $8.6 billion takeover offer, which was rejected by Caltex’s board as inadequate.

Softer than anticipated refining margins in December meant earnings before interest and tax at the Lytton refinery in Brisbane for 2019 would be $70 million, down from $75 million-$85 million advised only six weeks ago, Caltex said.

The company’s refining margin in the December quarter was just $US7.51 a barrel, well below the $US8.50 it had assumed for its December 5 guidance.

Still, Caltex maintained guidance for total EBIT for last year to between $580 million and $620 million, while sales from the refinery’s production have jumped.

Shares in Caltex edged up 6¢ to $35.62, some 3.2 per cent above the $34.50 proposed by Couche-Tard. The shares rose above the offer price when Caltex revealed last week it had received other approaches for parts of its business, although none of those is understood to involve a full takeover or be a firm offer.

Still, Couche-Tard president and chief executive Brian Hannasch, who is in Sydney for the briefings, reiterated on Thursday that the Canadian convenience retailer believes its existing proposal “fully values Caltex and is compelling for Caltex shareholders”.

He also highlighted Couche-Tard’s “disciplined” approach to the many acquisitions it has made in several markets.

“ACT is a disciplined investor and an experienced operator across multiple markets,” Mr Hannasch said in a statement.

“We have shown our capacity to successfully enter new markets, learn from our acquisitions and create value for our shareholders, but we will always be guided by shareholder returns in our decision-making.”

Couche-Tard’s team in Sydney for the meetings includes co-founder and chairman Alain Bouchard, chief financial officer Claude Tessier and senior executives from its European business, where it owns terminals and infrastructure similar to some of Caltex’s Fuels & Infrastructure business.

At the same time as the Couche-Tard talks, Caltex is exploring potential options with other suitors that are interested in parts of its business, which comprises Fuels & Infrastructure, including a refinery near Brisbane, and a convenience retailing network.

Those involve UK-based EG Group, which paid $1.73 billion to buy Woolworths’ petrol business last year, and others, thought to include Caltex’s former half-owner Chevron, infrastructure investors and Asian players.

“There is no certainty that the discussions between Caltex and ATD [Couche-Tard] will result in ATD improving its indicative cash price or in ATD making a binding proposal,” Caltex said in a statement to the Australian Securities Exchange ahead of the meeting.

The December quarter refiner margin was about 29 per cent down on the September quarter’s number of $US10.53 a barrel and several dollars weaker than the Singapore average margin. Caltex put the softness down to movements in overseas markets, weaker demand for Asian diesel from Europe and higher crude premiums since the introduction of new marine fuel standards on January 1.

RBC Capital Markets analyst Ben Wilson said the refining margin was “a little weaker than anticipated” but was partly offset by strong sales. He said he expects refining margins to lift over the course of the year as the Lytton refinery is well placed to take advantage of new international standards for low-sulphur marine fuels.

“We are a little less sanguine on the prospects for the Convenience Retail business in light of burgeoning competition in the space, most notably of late from EG Group’s purchase of Woolworths’ sites and Chevron’s purchase of Puma Energy sites,” he said.

Extracted from AFR