The chief executive of Alimentation Couche-Tard has expressed keen interest in pursuing a takeover bid for Caltex Australia but has hinted that the crash in equity markets due to COVID-19 may warrant a reduction in the price.
While keeping his comments general about M&A, Brian Hannasch said it was “normal to see contraction in multiples during periods of crisis and after” and pointed to the opportunities that could arise as a result for Couche-Tard with its strong balance sheet.
He also emphasised the need for any takeover deal to offer value for Couche-Tard shareholders.
“We’re in the middle of our due diligence process and we’ll get comfortable by applying our usual rigour and discipline around M&A,” he said of Caltex, for which Couche-Tard is studying a potential $35.25 a share offer, a level that is now more than 75 per cent above Caltex’s market price after a steep drop in the last two weeks.
“Our first and foremost goal is to make sure that any transaction we do will deliver appropriate returns to build long-term value for all of our stakeholders.”
As there is no agreed deal between Couche-Tard and Caltex, Couche-Tard is understood to have the flexibility to lower its offer price without having to walk away and re-approach its target at a later date.
Mr Hannasch said he wouldn’t comment on the due diligence process but reiterated that the Canadian convenience retailer was “committed to 100 per cent of the business” of Caltex, which includes refining and trading, as well as fuels distribution and retailing.
He said Couche-Tard could leverage the experience of when it bought Norway’s SFR business in 2012, which he said included a very similar asset base.
Some of our best opportunities have come after a difficult period.
— Couche-Tard CEO Brian Hannasch
“And then I would say due diligence has also reinforced the fact that Caltex has a very strong team with a high level of expertise around the full value chain,” he added.
The drop in Caltex’s share price over the past two weeks has opened up a large gap between the traded price and Couche-Tard’s proposed offer, which has effectively been reduced to $34.74 through Caltex’s payment of a 51¢ dividend for the December half.
Shares in Caltex closed at $19.77 on Wednesday, meaning Couche-Tard’s proposed bid represents a premium of about 75 per cent over the market price.
A conditional rival offer from Britain-based EG Group was last month deemed by the Caltex board as not attractive enough to warrant giving access to the company’s accounts.
Couche-Tard, one of the world’s biggest convenience retailers, is keen to buy Caltex to develop its presence in the Asia-Pacific market and drive further growth.
Mr Hannasch highlighted the opportunities for acquisitions that could arise for Couche-Tard because of the effect the COVID-19 outbreak was having on markets.
“If I look back over the years, I would say some of our best opportunities have come after a difficult period,” he told investors on a conference call for Couche-Tard’s third-quarter earnings.
“I think it’s very likely that the landscape for credit and M&A multiples will change dramatically, and our goal is to be ready if the right opportunities present themselves.”
Chief financial officer Claude Tessier said Couche-Tard was in a “good position” for M&A, with an investment-grade credit rating, good liquidity and a strong cash position, with full access to a $C2.5 billion ($2.9 billion) credit facility.
“And as of now, financing has not dried up for investment grade in the capital market,” he said. “The investors are still looking for good quality bonds to invest in.”
Mr Tessier said that once the peak of the coronavirus crisis passed, Couche-Tard expected to see a desire to accelerate investment to restart the economy.
“And this in an environment where conditions and availability are going to be favourable to strong players like us,” he said.
“So we’re monitoring that very closely. But we feel that we still have flexibility in this environment right now.”
Extracted from AFR