UK-based EG Group has lobbed a rival takeover offer for Caltex Australia, providing firm competition for the fuel supplier’s existing suitor, Canadian retailing giant Alimentation Couche-Tard.
Caltex on Wednesday confirmed it had received a non-binding offer to acquire it for a mix of $3.9 billion in cash and the rest in scrip in a fuels and infrastructure business that would be listed on the Australian Securities Exchange under the name of Ampol.
The proposal would mean the break-up of the company, with EG Group taking Caltex’s convenience retailing business, and the rest of the assets held in the new company that would be listed in Sydney.
Caltex didn’t give a full per-share value for the bid, but said shareholders would receive about $15.62 per share in cash and a security in Ampol for each of their shares. That compares with the outright $8.8 billion cash offer from Couche-Tard, representing $35.35 per share.
EG’s move comes after Couche-Tard last week sweetened its cash offer for Caltex for a second time, after originally approaching the board in October with a $32 per share proposal. It declared its latest offer final unless there was a competing bid.
Caltex, which on Monday granted Couche-Tard access to its accounts to firm up an offer, said on Wednesday it was considering EG’s proposal and taking financial and legal advice.
Shares in Caltex were little changed as investors digested the alternative proposal, up 6¢ at $34.56 in mid-morning trading after earlier reaching as high as $34.70, still below Couche-Tard’s offer. The stock traded above $35 in early January before sliding amid weakness in the refining sector.
Moody’s vice president Ian Chitterer said the EG proposal increases uncertainty over the future of the Caltex business for both creditors and shareholders.
“While it is too early to comment on the probability of the various possible outcomes, we expect any acquisition to be credit negative for Caltex, with more downside risk to the rating expected from a proposal by EG Group than from Alimentation Couche-Tard,” Mr Chitterer said.
“The best case scenario for Caltex’s credit profile would be no acquisition, but with the two competing bidders, that seems increasingly unlikely.”
EG, a British petrol station group started by two brothers in Manchester in 2001, was known to be in the mix of parties circling Caltex after the Couche-Tard approach was revealed. That line-up is also thought to include Caltex’s former 50 per cent owner Chevron, which is re-entering Australian fuels retailing through the $425 million takeover of Puma Energy’s local network and is expected to want to build up a significant business.
Owned by billionaires Zuber and Mohsin Issa and backed by TDR Capital, EG hired a former long-term Caltex executive Mike McMenamin to run its business in Australia.
It is understood to have talked to potential partners for a bid for Caltex, including Macquarie, and to still be open to working with others that might be interested in different parts of the business. MST Marquee analyst Mark Samter has previously suggested Chevron could team up with EG for a bid.
Caltex said EG’s proposal allows it to continue paying dividends before a deal is implemented and also provided for a fully franked special dividend to allow for the distribution of all its franking credits, valued at about $830 million.
EG has also signalled it would consider buying up to 10 per cent of the listed Ampol for a further cash amount, Caltex said.
The private British firm’s proposal is subject to several conditions, including clearance from the Australian Competition and Consumer Commission, which is widely expected to have concerns about a takeover given EG’s $1.73 billion acquisition in 2018 of Woolworths’ 540-strong petrol station network in Australia.
Still, EG’s planned spin-off of the refining and infrastructure business from retailing could reduce competition concerns, while the group is also expected to be prepared to divest some Caltex petrol station sites if required.
The proposal is also subject to debt funding, foreign investment approval and the unanimous recommendation of the Caltex board. A new fuel supply agreement between EG and Ampol would also be required.
Extracted from AFR