BP has turned its focus to sealing an alliance with a supermarket in Australia to grow its retailing business after walking away from its proposed $1.8 billion purchase of Woolworths’ network of petrol stations.
Andy Holmes, BP’s chief operating officer for Asia-Pacific, said the oil major had explored “every available option” to overcome the competition regulator’s objections, including selling sites and bringing in a third party, without success.
“We can’t make it work,” Mr Holmes said. “We’re OK with that; we’re happy to move on to other things.”
The decision also leaves Woolworths free to consider other suitors for the business or consider a demerger and separate listing. However, analysts said Woolworths was unlikely to get as much BP was willing to offer.
“In our view, another deal is unlikely to be as attractive as the proposed BP transaction because there is unlikely to be access to premium sites for the provision of petrol discounts and convenience retail,” Deutsche Bank analyst Michael Simotas said.
But Mr Holmes said BP didn’t pursue a legal challenge because it would be “very expensive and time-consuming” and the company wanted to look forward, rather than back. .
BP is now in discussions with Woolworths as well as other supermarkets in Australia about a potential broader alliance similar to ones it has struck in Britain and Germany, he said.
“We’re very, very clear that we work best with partners and supermarket partners are of particularly interest to us,” he said.
Mr Holmes added that customers would be the losers from the ACCC’s objections and had a word of advice for government: “It would help if the politicians have a look at how trade and investment policy intersects with competition policy if they want to encourage investment and innovation in our business and in many businesses.”
The sale agreement was due to lapse next week and Woolworths chief executive Brad Banducci said last month the retailer was “working through the myriad of options we have”, noting it had received expressions of interest from other potential partners.
“We’ve had lots of expressions of interest from parties, we’re very cognisant of the challenges posed by the ACCC, we’re developing a package of options acceptable to the ACCC – it’s at the top of our list of priorities,” Mr Banducci said.
Woolworths said on Thursday it would continue to look at alternative options for the fuels business.
Woolworths originally planned to use the $1.78 billion proceeds to reduce debt, fund supermarket refurbishments and possibly also return capital to shareholders.
However, when the ACCC knocked back the deal last December Mr Banducci said the retailer’s plans to refurbish 80 stores this year were not contingent on completing the sale.
Woolworths is in a much better financial position now than it was when it first put the fuel business on the market almost two years ago, when it was in the midst of sinking $1 billion into reducing grocery prices to regain lost sales momentum.
Now that Woolworths is back to strong growth, analysts believe there may even be merit in keeping the fuel business, as the 530-odd petrol outlets could be used to expand the retailer’s convenience store, online and click and collect operations.
UBS analysts said Woolworths had three options – sell fuels to an alternative party (one of which could be its current fuel supplier Caltex Australia), de-merge the business and list it as a separate entity, or retain the business.
UBS said retention was only likely if other offers were deemed inadequate or if the sale process would take too long, such as beyond 2018.
For Caltex, the collapse of the BP deal provides a reprieve from the loss of a 3.6 billion litres a year wholesale supply contract with the supermarket chain which would have ended when Woolworths sold the fuel network.
Caltex has told investors the impact of losing the Woolworths contract would be about $150 million in earnings before interest and tax and has turned to acquisitions to help close that gap. It said on Thursday it is continuing to supply Woolworths.
UBS said the likelihood of Caltex retaining its fuel supply deal had increased.
“We believe on balance Caltex is likely to retain the supply agreement, albeit a change in control could trigger a change in terms,” UBS said.
Extracted from AFR