Caltex Australia has knocked back a takeover offer from British company EG Group, leaving Canadian suitor Alimentation Couche-Tard in the box seat in the chase for the ASX-listed fuel and convenience retailer.
EG’s $3.9 billion cash plus shares bid for Caltex “undervalues” the company and does not represent “compelling” value for shareholders, the group’s board said in a statement to the ASX on Monday.
But rather than rejecting the British firm outright, Caltex said it was in shareholders’ interests to “engage further” with EG about a potential acquisition.
“The Caltex board has carefully considered the EG proposal, including taking into account the associated risk, costs and complexities,” it said.
“However, the Caltex board considers that it is in the interests of Caltex shareholders to engage further with EG. Accordingly, Caltex has offered to engage further with EG in relation to a potential acquisition,” it said.
The fuel refiner and convenience retailer has been in play since November last year when it first revealed the unsolicited cash takeover offer from Couche-Tarde.
‘The board has concluded that the EG proposal undervalues the company.’
Caltex’s board
The board’s stance echoes a similar position it took in December with Couche-Tard which eventually led to the Quebec-based retailer substantially increasing its cash offer to $8.8 billion.
“There is no certainty that the discussions between Caltex and EG will result in EG improving its proposal or in EG making a binding proposal,” Caltex said.
Privately-owned EG, or Euro Garages, in February offered $3.9 billion in cash for Caltex’s convenience store business and separate shares in a new, listed infrastructure and refinery company to be called Ampol made up of Caltex’s remaining assets.
The bid also hinged on EG negotiating a fuel supply agreement with the newly-listed entity for Caltex’s service stations and the Woolworths fuel outlets it already owns.
EG, controlled by British billionaire brothers Mohsin and Zuber Issa, entered the Australian market in 2018 with the $1.7 billion acquisition of Woolworths’ 540 petrol stations.
Couche-Tard is carrying out non-exclusive due diligence on Caltex. Its first unsolicited $34.50-a-share offer was rejected by Caltex, which said it “undervalued” the company. Couche-Tard is controlled by its billionaire co-founder Alain Bouchard.
Analysts at RBC Capital Markets said EG’s $3.9 billion cash bid for Caltex’s retail business implied a value of $15.62 per share that fell short of RBC’s value estimate of $17 per share.
‘In our view, Couche remains in the box seat despite Caltex indicating it would continue to engage with EG in relation to a potential deal.’
-RBC Capital Markets analyst Ben Wilson
“Due to the complexity of the EG bid relative to Alimentation Couche-Tard’s bid, in our view an EG proposal needed to represent clear, compelling value to warrant attention versus the more appealing all-cash bid,” analyst Ben Wilson said.
It was “unsurprising” EG’s bid fell short when compared to Couche-Tard’s and its rejection also decreased the likelihood of Couche-Tard raising its offer, he said.
“In our view, Couche remains in the box seat despite Caltex indicating it would continue to engage with EG in relation to a potential deal.”
Challenging trading conditions in the fuel sector haven’t dampened enthusiasm from other suitors queuing for control of the petrol retailer.
Caltex’s new interim chief executive Matthew Halliday was talking up interest from other parties after his appointment to the top job last week.
The transaction could “unfold in any number of ways,” he said.
The company was engaging with other potentially interested parties that have yet to lob formal takeover offers.
“We continue to engage with a range of other parties in relation to the situation, so it remains a very active space,” he said.
Caltex released its full-year accounts last Tuesday which showed underlying weakness in national retail fuel and refining margins had contributed to a 38 per cent fall in the group’s full-year profit.
Caltex’s stock has traded down, along with the broader market, over the past week to about $32 per share.
Extracted from The Sydney Morning Herald