21
May

Ampol subsidies may be a mixed blessing for former suitor Couche-Tard

The federal government support offered to Ampol for its Lytton Refinery in Brisbane to remain open may make the company more attractive to its former suitor Alimentation Couche-Tard in one regard, but some wish it well with any attempt gaining the blessing for an acquisition of the $6.55bn company from the Australian government.

Market observers say the subsidies offered to Ampol for its Lytton refining operations shows that the Morrison government sees the company as important for national security, which may make the business off limits for an international buyer from a Foreign Investment Review Board perspective.

Ampol announced on Monday Ampol will receive $108m a year in taxpayer funding for Lytton during periods of low refining margins and a $135m funding grant to undertake upgrades to produce ultra-low sulphur petrol, in what has prompted the company to keen the loss making refinery open for at least another three years.

The Australian government’s offered taxpayer subsidies worth up to $2.3bn for Australia’s two remaining oil refineries – Lytton owned by Ampol and the Geelong Refinery owned by Viva Energy – to help safeguard national fuel security.

Couche-Tard made an $8.8bn proposal to buy Ampol in 2020, but it backed away from its buyout plans in April last year when the global pandemic sent shockwaves through financial markets.

The hope among some investors was that Couche-Tard could be back for Ampol amid a less volatile environment and once Lytton was shut down or sold.

The latest announced government funding for Lytton to remain open would have made an acquisition of Ampol equally as favourable as if the refinery was closed, according to some, but there is a theory that Couche-Tard had moved on after it made a play last year for a far larger target, the French hypermarket chain Carrefour.

The US$19.66bn buyout proposal for Carrefour last year would have created the world’s third largest grocery retailer behind Walmart and Lidl owner Schwartz Group, but that deal was blocked by the French government.

France saw that move as a threat to the country’s jobs and food security amid the troubling times brought on by Covid-19.

That could also make Canada’s Couche-Tard hesitant when it comes to embarking on any further buyout proposals amid a trend internationally towards protectionism.

The Wall Street Journal reported this year that in the UK, the government proposed in November new legislation to bolster its powers to block foreign takeovers of British companies.

Under the proposed rules, investors would have to notify the government about transactions in 17 sectors including nuclear, artificial intelligence, transport, energy and defence.

European governments have strengthened their protections against foreign business takeovers to shield industries that are deemed strategic or important to the country’s national security.

Meanwhile, the other suitor for part of Ampol in 2019 at the time Couche Tard was looking was EG Group, but it has since reportedly moved on to other targets, reportedly buying grocery chain Asda for STG6.8bn, Schrader Oil in the United States and petrol station forecourt sites in Germany.

It also made an unsuccessful $20bn-plus bid for US petrol station chain Speedway last year.

And then there is, of course, the Ampol share price which would make a deal less attractive.

Shares have rallied more than 6 per cent since the news on the subsidies, closing at $27.91.

Extracted from The Australian