Takeover target Caltex Australia is expecting demand for jetfuel could drop by up to 90 per cent from normal levels as a result of widespread flight cancellations in a dramatic scale up from its initial estimate of the impact of COVID-19.
In February, the fuels supplier estimated a 5-10 per cent impact on jetfuel demand, but the sweeping expansion of flight cutbacks and mobility restrictions imposed by governments due to the coronavirus outbreak means the figure could be 80-90 per cent for as long as the cancellations last.
Caltex, whose proposed $8.8 billion takeover offer from Canada’s Alimentation Couche-Tard is on shaky ground due to the crash in equity markets, said it is “assessing the impact” of the drop in demand on its business. Last year, 12 per cent of the output from Caltex’s Lytton refinery in Brisbane was jetfuel, which used to be a bright standout amid overall softening demand for refined fuels.
Caltex’s shares, which have been heavily sold off over the past three weeks, were down 7.4 per cent at $18.99 shortly before the close, compared with a 5.5 per cent drop at rival Viva Energy.
“Caltex also continues to closely monitor demand in the Australian gasoline and diesel markets given the evolving COVID-19 situation,” it added.
The petrol and diesel supplier said earlier this month it was not able to see any clear impact from the virus outbreak on petrol and diesel demand, but that was before the ramping up of restrictions on personal mobility and on business operations announced by federal, state and territory governments.
Couche-Tard chief executive Brian Hannasch gave a clear signal last week that a reduction in the price the Canadian firm is offering for Caltex may be warranted due to the market downturn. Couche-Tard is carrying out due diligence on a $35.25 a share offer, which has since been reduced to $34.74 as a result of a dividend payment by Caltex but which remains significantly above Caltex’s traded price after the recent steep falls.
Mr Hannasch told investors it was “normal to see contraction in multiples during periods of crisis and after”.
Some analysts in North America said they expected Couche-Tard to reduce its offer price, and opinions are mixed as to whether a deal is still likely.
“Should [Couche-Tard] continue to pursue Caltex, we assume that the offer price will be adjusted to reflect the new market conditions,” TD Securities analyst Michael Van Aelst said.
RBC Dominion Securities’ Irene Nattel assessed the likelihood of a deal going ahead as “low” due to the dislocation in equity and financial markets but said she expected Couche-Tard to remain engaged.
BMO Capital Markets said that if Caltex’s board was not prepared to renegotiate the proposed price, it “may be unlikely the transaction will proceed, as the value of Caltex has fallen substantially below the proposed offer price and given the volatility in the stock markets, other more attractive acquisition targets may arise”.
Extracted from AFR