ACCC EYES FUEL, GROCERY PRICE RISE CONCERNS IN VIVA’S OTR TAKEOVER

The competition regulator says the proposed sale of almost two dozen petrol stations in South Australia may not be enough to settle its concerns about Viva Energy’s acquisition of the Peregrine Corporation’s OTR Group.

The ASX-listed energy group said in April that it had reached an agreement to buy OTR, which operates the 205-strong network of On the Run outlets, for $1.15 billion from Peregrine, owned by the Shahin family.

Viva Energy chief executive Scott Wyatt and OTR Group’s Yasser Shahin in April. Approval from the competition regulator may present risk to Viva Energy’s plan to acquire OTR Group. Ben Searcy

In a notice to market participants, the Australian Competition and Consumer Commission said it would consider whether the deal would lead to higher retail fuel prices and higher convenience and grocery prices. It is also considering whether the purchase would be likely to affect Viva’s incentives to supply wholesale customers who are rivals to OTR’s business.

“The ACCC has not yet formed a view as to the nature and extent of any competition concerns with respect to the proposed acquisition, or whether they are capable of being addressed by [the] divestiture proposal,” it reads.

As part of that deal, Viva said it would divest 23 sites in Adelaide, where OTR is one of the largest operators of petrol stations and convenience retail. Viva, which runs Shell-branded outlets across the country, is also acquiring OTR’s Smokemart and Giftbox retail chains, as well as a wholesale fuel distribution business and the Ausfuel Group, which was owned by Chevron until March.

The Australian petrol retailing and convenience market is in the midst of significant change, with another major company in the sector, 7-Eleven, up for sale. The Australian Financial Review’s Street Talk column reported in late May that marketing documents circulated by Azure Capital, which is advising the Withers and Barlow families on the sale, noted that 7-Eleven will have sold 2.7 billion litres of fuel in the 12 months to June 30.

EV factor

Part of the attraction of OTR for Viva was its experience running convenience stores. Viva took full ownership of Coles Express stores in September. OTR’s stores on average generate $3.9 million of sales a year, more than double the $1.6 million average of Coles Express.

Viva will adopt OTR’s broader convenience offering at its larger stores, including quick serve restaurants, barista coffee and dog-wash facilities. Those services will become more important as customers move towards electric vehicles which require frequent charging.

The ACCC, in its notice, requested market participants “address the closeness of competition between Viva Energy (including Coles Express sites) and OTR Group sites … for the retail supply of fuel”.

“Fuel prices in large Australian cities tend to be cyclical. A typical price cycle involves a sharp increase in retail petrol prices over a relatively small number of days, followed by a gradual decline in price over a longer period, up to a few weeks or more,” the notice reads.

Broker UBS had, in April, suggested approval from the competition regulator may be a risk for Viva’s acquisition plans. If successful, Viva would have more than 50 per cent of the market in Adelaide. The ACCC has previously blocked acquisitions of retail fuel networks, including preventing BP from purchasing the Woolworths service station network in December 2017. Viva shares opened 2 per cent lower at $2.90 on Friday. They have risen more than 6.8 per cent, or 22.5¢, since December 31.