Woolworths, BP brace for ACCC decision on $1.8 billion fuel deal

Sue Mitchell 
July 11, 2017
AFR

The competition watchdog has delayed making a decision on BP’s $1.8 billion acquisition of Woolworths’ fuel business until August after receiving a request for more time by Woolworths and BP.

The Australian Competition and Consumer Commission was due to have decided by Thursday whether to approve or block the deal or whether to release a statement of issues.

Woolworths and BP asked the ACCC to delay its decision after the commission recently raised “issues,” one source said.

The ACCC will announce a new date after receiving additional information from both parties.

BP remains optimistic the ACCC will eventually clear the deal, which will make the British-based energy company the largest fuel retailer in Australia.

“BP is working closely with the ACCC and we respect the process. We remain confident that clearance will be granted in due course,” a BP spokesperson said.

However, analysts believe there is a 50 per cent chance the deal will be blocked. Even if it is approved, BP may be forced to sell as many as 90 outlets to appease the ACCC, changing the economics of the deal.

The acquisition will increase BP’s share of the wholesale fuel market from around 18 per cent to 30 per cent and increase the number of BP-supplied sites by at least 527 to more than 1930, similar to Caltex, which has about 1900 sites, and larger than Shell (980) and Coles Express (692). BP’s share of company-owned and operated sites will rise by 5 per cent to 12 per cent. 

“I think there will be issues,” Credit Suisse analyst Grant Saligari said on Monday. “Whether they’re issues that stop it in its tracks or issues that could be dealt with some way we’ll have to wait and see.” 

“Look at [Caltex’s acquisition of Milemaker Petroleum] – there were issues of potential concern raised in that transaction and it eventually got through. However, this is a bigger deal.”

Serious concerns 

Woolworths shares, which have outperformed rival Wesfarmers this year, could come under pressure if the ACCC raises serious concerns about the deal.

“The market is generally expecting it to be approved so if it wasn’t or if there were substantive issues raised that would be negative,” Mr Saligari said.

In a report in January, Credit Suisse said the BP agreement was ‘anti-competitive’, bad for consumers and was unlikely to be approved by the ACCC in the first instance.

“BP is a premium pricer, Woolworths is a discounter. It is hard, therefore, to see how this transaction would not put upward pressure on retail margins,” Credit Suisse analysts said. “We find it hard to reach any conclusion other than that a BP/Woolworths deal would be detrimental to competition in this sector.” 

BP has dismissed suggestions the deal will push up prices but has conceded it may have to sell some sites to overcome the ACCC’s concerns. 

“We are very confident they’ll make sure the highly competitive nature of the Australian market won’t be affected by this transaction,” BP Australia president Andy Holmes told the The Australian Financial Review earlier this year.

Supermarket refurbishments

Woolworths plans to use the $1.78 billion proceeds from the sale to reduce debt and fund much-needed supermarket refurbishments.

It is understood that if the deal is approved conditional on the sale of selected sites, Woolworths will receive payment in full and BP will take on the risk of divesting sites.

However, Woolworths declined to comment on Monday on the nature of the agreement, details of which have not been released. 

Sources said they were confident BP could address the ACCC’s concerns and the overall deal would proceed. 

In partnership with BP, Woolworths also plans to jointly develop a new Metro at BP convenience store offering, drawing on Woolworths’ Metro small-store format and BP’s convenience store partnerships with Marks & Spencer in the United Kingdom and Rewe in Germany.

Under the deal, BP plans to fund the roll-out of at least 200 Metro at BP stores. If the ACCC forces BP to divest a larger number of stores it may crimp convenience store expansion plans.

BP will become a cornerstone partner in Woolworths’ customer loyalty program and the two plan to jointly fund a 4¢-a litre-fuel discount offer at 527 Woolworths sites as well as additional BP outlets