Caltex Australia’s suitor, Alimentation Couche-Tard, has emphasised how its strong financial position places it well for acquisitions while refraining from clarifying its appetite to pursue the proposed $8.8 billion takeover in the current market upheaval.

“Our balance sheet is healthier than ever, placing us in a solid position to take advantage of growth opportunities,” Couche-Tard chief financial officer Claude Tessier said in the Montreal-based company’s third-quarter report.

Mr Tessier pointed to Couche-Tard’s “strong” cashflow generation, efforts to reduce costs and improve efficiency, its paydown of debt, increase of dividends and its raising of $C1.5 billion ($1.76 billion) through the sale of unsecured notes at “favourable” terms.

The report for the three months ended February 2 otherwise makes no reference to the convenience retailer’s ongoing due diligence on Caltex, Australia’s biggest petrol and diesel supplier, for its proposed cash takeover offer.

Chief executive Brian Hannasch is, however, expected to update investors on the situation in a conference call presentation to investors late on Wednesday AEDT.

Couche-Tard secured access to Caltex’s accounts to potentially firm up an offer last month, before the equity markets crashed as the impact of the COVID-19 global epidemic spread. Its improved $35.25-a-share offer is now worth $34.74 a share after Caltex paid a 51¢ dividend for the December half but is now well above the Australian fuels supplier’s share price after a sharp sell-off in recent weeks.

Caltex shares were off another 6.2 per cent in morning trading on Wednesday at $20.71, meaning Couche-Tard’s offer represents a premium of about 68 per cent to the market price.

The stock was trading at more than $34 as recently as February.

The wide gap between the proposed offer price and the trading price suggests the market has written off the chances of a takeover going ahead at that price, but RBC Capital Markets analyst Ben Wilson thinks otherwise and says Caltex has been “oversold”.

“There is a risk that the bid is revised lower or that Couche walks, however we look to [Couche-Tard’s] bid history during challenging economic circumstances as a consoling factor in our assessment of the situation,” Mr Wilson told clients.

He noted that during the global financial crisis, US retail chain Casey’s attracted a takeover bid from Couche-Tard that was ultimately rejected “but in our view acts as reassurance that challenging economic conditions will not deter the suitor in progressing should it still see value in the Caltex business”.

“We think investors are best placed to look through current refining volatility in what is a cyclical business, and we expect a rebound into 2021,” Mr Wilson said.

Caltex, now being steered by interim chief executive Matt Halliday, advised last week that its initial estimate of a 5 per cent – 10 per cent drop in jetfuel demand in Australia as a result of the COVID-19 outbreak could be optimistic, pointing to announcements by airlines of reduced capacity and services.

Since then, Qantas has announced a 90 per cent cut in international capacity at least until the end of May, while Virgin Australia on Wednesday advised of a two-and-a-half month suspension of international flights starting March 30. Both have also slashed domestic capacity.

While refiners typically benefit from drops in crude oil prices, which take time to filter through to fuel prices, domestic mobility restrictions also look likely to suppress demand for petrol and diesel.

Caltex said last week it wasn’t yet able to see any clear impacts on demand in the Australian gasoline and diesel markets as a result of the coronavirus “due to the broad range of customers and the different influences on demand”.

Meanwhile, fellow ASX-listed oil refiner Viva Energy said on Wednesday it would start an on-market buyback ahead of a previously flagged off-market buyback, “taking into account the prevailing market conditions and share price”.

The buybacks are the lynchpin of Viva’s plan to return the $680 million in after-tax cash proceeds from the sale of its stake in a retail property fund to shareholders.

Shares in Viva were down 5.1 per cent at $1.395 just before midday.

Extracted from AFR