Ampol, a significant player in the Australian fuel industry with a valuation of $9 billion, is considering acquiring EG Group’s collection of Australian service stations. This move comes at a time when Ampol’s stock is performing exceptionally well. The company has earned the trust of its shareholders through successful mergers and acquisitions, exemplified by its $2 billion purchase of Z Energy in 2021.
However, should Ampol proceed with the acquisition, it may need to divest some service stations to comply with competition regulations, especially since the Australian government recently granted increased powers to the Australian Competition and Consumer Commission to promote market competition and reduce concentration.
Ampol’s rival, Viva Energy, made a significant acquisition of the On The Run fuel retail business for $1.15 billion last year.
EG Group has been considering an exit from Australia for some time now. Reports from 2021 suggested that EG Group contemplated an initial public offering on the Australian Securities Exchange. At that time, the British company, operating globally, including in Europe, the US, and Australia, aimed to decrease its debt after an aggressive acquisition spree that expanded its global portfolio to over 6000 sites.
Ampol had previously shown interest in EG Group, but it was expected to pursue an acquisition only if the price was favourable. EG Group demonstrated its competitive edge by outbidding others to acquire a portfolio of 540 fuel convenience sites from Woolworths for $1.7 billion in 2018.
Despite the increasing popularity of clean energy vehicles, service stations are expected to remain crucial for distributing clean fuels like hydrogen.
EG Group made a $3.9 billion bid for Ampol’s convenience retail business in early 2020, which was rejected. Woolworths, the previous owner of the petrol stations, now owned by EG Group, initiated the sale process. BP emerged as the winner with a $1.8 billion bid, but the transaction was blocked by the ACCC, with Ampol being one of the underbidders. Instead, Ampol established a fuel supply agreement with Woolworths.
EG Group, founded in 2001 by Mohsin and Zuber Issa, experienced a 7% decrease in earnings before interest, tax, depreciation, and amortisation (EBITDA) last year due to oil price fluctuations. Ampol also reported a 25% decrease in net profit to $549.1 million, primarily due to significant items. However, Ampol remains optimistic about participating in industry consolidation opportunities despite having $2.1 billion in net debt.
Analysts from JPMorgan estimate that EG Group could generate between $450 million and $500 million in annual EBITDA. They suggest that if Ampol were to acquire EG Group at a price between $3 billion and $4 billion, it would likely need to finance the transaction with equity partially. The analysts believe such a transaction could benefit Ampol, potentially increasing its net profit by 20 to 30%.
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