Caltex Australia says the $3.9 billion-plus buyout proposal from British company EG Group undervalues the company, but it is prepared to talk further with EG because a better deal might eventuate.

Analysts say rival bidder, Canada’s Alimentation Couche-Tard, is in the box seat to win the takeover battle because its cash bid is much cleaner. Couche-Tard raised its bid for Caltex in mid-February to $8.8 billion and was granted access to the company’s books.

EG Group’s proposal involves a complex mix of $3.9 billion in cash for the Caltex convenience retail business, and shares in a fuels and infrastructure business that would be spun off in a listed company called Ampol.

The Caltex board on Monday said the EG proposal undervalued the company.

“The board has concluded that the EG proposal undervalues the company and does not represent compelling value for Caltex’s shareholders,” Caltex told the ASX on Monday.

“However, the Caltex board considers that it is in the interests of Caltex shareholders to engage further with EG,” the company said.

“Accordingly, Caltex has offered to engage further with EG in relation to a potential transaction”.

RBC analyst Ben Wilson said Couche-Tard ”remains in the box seat despite Caltex indicating it would continue to engage with EG in relation to a potential deal”.

Mr Wilson said the EG proposal ”needed to represent clear, compelling value to warrant attention versus the more appealing all-cash bid”.

EG Group has been built up by two brothers from Lancashire in northern England, Mohsin and Zuber Issa.

Caltex on February 25 resigned itself to the inevitability of a takeover by one of its rival suitors, when it appointed its relatively new chief financial officer, Matthew Halliday, as interim chief executive and put on ice a search for a permanent replacement for retiring Julian Segal.

The promotion of the former Rio Tinto Alcan chief financial officer left the more experienced fuels industry executive, Louise Warner – considered the lead internal candidate to replace Mr Segal – in charge of operations amid volatile and difficult conditions in both refining and retailing.

Full-year profits slid by 38 per cent, dragged lower by weaker refinery earnings, tough competition and a soft broader market.

The bottom-line figure, which includes the value of stockpiles, fell 32 per cent to $383 million in the year ended December 31, from $560 million a year earlier.

Contrasting offers

JPMorgan calculates EG’s offer at $30.43 a share, less than Couche-Tard’s straight $35.25 cash offer.

EG’s offer would involve a break-up of Caltex, losing the value that comes from managing an integrated fuels supply chain, starting with a trading and supply business in Singapore through to refining, imports, distribution and retail petrol stations.

The offer from EG, which bought Woolworths’ Australian petrol stations in 2018, may also run into hurdles with the Australian Competition and Consumer Commission.

Couche-Tard increased its offer in mid-February to $35.25 a share, four weeks after confidential presentations by Caltex’s top management to the convenience retailing giant in two days of briefings in Sydney.

It was the second time Couche-Tard had increased its price despite no rival bid being on the table. Its initial proposal of $32 a share in October was lifted to $34.50 in late November.

Couche-Tard, which is French for ‘night owl’, has built a vast network of more than 16,000 convenience stores around the world, starting from a sole store opened in 1980 in Laval, Quebec. One of its main brands in the northern hemisphere is Circle K.

Caltex has a network of 1900 outlets in Australia.

Extracted from AFR