A takeover offer for Caltex by Britain’s EG Group will face a probe by the competition regulator if it proceeds after Britain’s billionaire Issa brothers joined a bidding war for control of the Australian retail fuel operator.
EG, owned by Mohsin and Zuber Issa, has proposed paying $3.9bn in cash for Caltex’s convenience retail business and giving shareholders a stake in an ASX-listed business containing its existing fuel and infrastructure division in an offer that effectively breaks up one of Australia’s oldest companies.
The move pits EG against a $8.8bn bid for all of Caltex from Canadian convenience store giant Alimentation Couche-Tard, but also raises concerns over whether the British company would clear competition hurdles after it bought 540 Woolworths stores in 2019.
Australian Competition & Consumer Commission chairman Rod Sims said it would examine any deal given EG’s existing footprint in the country.
“Couche-Tard have no overlap here so that is straightforward but clearly EG do and so if that bid looks like it was proceeding, we’d have a close look at it,” Mr Sims said.
EG is understood to have held preliminary talks with the ACCC although it sees little overlap between its Woolworths stores and Caltex’s 2000 sites and is open to selling petrol stations if needed.
The regulator blocked BP’s $1.8bn bid for the Woolworths chain of petrol stations partly due to the prospect of BP as a premium fuel retailer replacing a discount operator, according to RBC. EG’s cheaper prices may work in its favour, the broker noted.
“Should it come to it, an ACCC assessment could come down to a suburb-by-suburb assessment,” RBC analyst Ben Wilson said.
Mr Sims said pricing would be among a range of issues considered if it reviewed any deal.
“It’s something we’d take into account. The thing with BP and Woolworths was we had past data and BP were significantly higher priced consistently around the country. We’d have to look at EG and that will be relevant.”
Zuber Issa held meetings in Sydney earlier in February with stakeholders and is expected to return to Australia in the coming weeks as the takeover plays out.
While Caltex said it was still considering EG’s offer, it’s expected to offer a period of due diligence to the British company after agreeing to open its books to Couche-Tard on Monday.
That move would stoke competitive rivalry between the two camps and potentially elicit a higher bid from Couche-Tard given its “best and final” offer of $35.25 a share hinged on no new suitors emerging.
Comparing the two offers depends on a range of assumptions with RBC saying EG’s bid for the retail business implied an eight-times multiple between enterprise value and EBITDA compared with Couche-Tard’s 10-times for the consolidated business. Others argue EG’s bid represents a close bid to Couche-Tard’s offer based on lower projected earnings for Caltex’s retail and fuels units.
Under EG’s offer Caltex shareholders would receive $15.62 cash and a security in Ampol for each Caltex share they own, allowing it to continue paying dividends to investors until a deal is completed. EG will consider buying up to 10 per cent of Ampol for an extra cash payment.
A fully franked special dividend would also be paid by Caltex to pay out its franking credits.
Couche-Tard’s $8.8bn bid, lobbed last week, appears to have received stronger support from shareholders and a change of attitude from the board. It represents a tempting payday for shareholders amid volatile conditions.