Woolworths and Caltex have struck a new 15-year fuel supply agreement and entered a long-term alliance covering convenience stores, wholesale food supply and loyalty rewards.
However, the retailing giant said it would still pursue a float or sale of its petrol business, which has been supplied with fuel by Caltex since 2004.
The deal comes just weeks after British oil major BP opted not to continue with the $1.8 billion purchase of Woolworths’ 543 fuel and convenience stores, which it had agreed to buy in 2016.
Woolworths said the new alliance would add 125 Caltex sites to the existing 638 fuel sites where its customers could redeem their 4¢-a-litre fuel discounts and earn Woolworths Rewards points.
Woolworths will supply wholesale food to more than 700 existing Caltex convenience sites, and the companies will roll out a convenience offering under the Metro banner to up to 250 Caltex sites over the next six years, with 50 sites planned over the next two years.
Caltex will make a one-off payment of about $50 million to Woolworths this month under the fuel supply deal, which is expected to deliver a pre-tax earnings boost of $80 million a year to Woolies’ petrol business and annual EBIT reduction of the same amount to Caltex.
Caltex said the new fuel supply agreement was “stapled” to the Woolworths’ sites, regardless of ownership, providing certainty of supply for Caltex.
Woolworths said it had put in place an expanded management team to position the petrol business for growth on a standalone basis as it pursued its IPO or sale. James Goth, currently Woolworths’ director of corporate development, has been appointed chief executive of the business.
“While we were disappointed with the termination of
the BP agreement, we believe the customer benefits of our alliance with Caltex, combined with a new fuel supply agreement, will allow us to deliver a compelling outcome for both our customers and our shareholders,” Woolworths’ CEO Brad Banducci said in a statement on Thursday.
“The Woolworths Petrol business is in a good position to pursue its own growth agenda supported by a highly competitive fuel supply agreement and a strengthened management team, all underpinned by solid links to the Woolworths food business.”
Woolworths put its petrol retailing business under review in September 2016 after receiving a number of proposals for the business. It subsequently agreed to sell to BP, however, the Australian Competition and Consumer Commission blocked the purchase, saying the sale would reduce competition and see motorists pay more for petrol.
Caltex, which stood to lose its fuel supply contract with Woolworths at a cost of $150 million in annual earnings if the BP deal went through, continued to supply Woolworths’ fuel in the interim.
More to come
Extracted from SMH