Fuel supplier and retailer Ampol will use its $1.1 billion acquisition of EG Australia’s network of service stations to expand its discount chain U-Go, chief executive Matt Halliday said after the deal won regulator approval.
The approval came after Ampol, formerly Caltex Australia, in late April increased the number of premises it committed to sell, from 37 to 41, to win clearance from the competition watchdog.
Those numbers were increased from Ampol’s initial commitment of 19.
The U-Go self-serve model of petrol station has become popular with motorists seeking cheaper fuel. Wayne Taylor
Ampol, which also owns the Lytton oil refinery in Queensland, currently operates 576 service stations under its brand name and 46 under the U-Go banner.
Its total network will increase by about 470 sites after the EG deal completes.
The number of divested sites – to be snapped up by independent fuel retailer Metro Petroleum – remains below the 115 the Australian Competition and Consumer Commission expressed concerns about in January, because their ownership by Ampol could substantially lessen competition.
Halliday said Ampol would now be able to scale up the low-cost U-Go brand via the EG network.
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About 125 EG sites are expected to be converted to U-Go, which accounted for three-quarters of the 3.2 per cent sales growth in Ampol’s retail business in the March quarter.
Motorists have become increasingly sensitive to higher prices after the start of the conflict in the Middle East in late February, which sent oil prices surging as oil and fuel transit through the critical Strait of Hormuz waterway in the Persian Gulf was blocked.
“Seventy-five per cent of our volume growth in the first quarter came through the U-Go model, so it’s fair to say it’s resonating with customers, and sits off the back of our strong supply chain that has held up very strongly for our customers in metro and regions right across the country during this crisis,” Halliday said.
“We’re increasingly confident in the viability of the offer, and how attractive it is for consumers … the ability to take that offer to scale through the EG acquisition is a great thing for our customers.”
The site divestments required by the ACCC are unlikely to impact the economics of the deal, including up to $80 million of synergies and an increase in earnings per share in the high single digits, said JPMorgan consumer analyst Bryan Raymond.
He said the divested sites were probably in more competitive areas and would have lower profitability.
“In addition to synergies, we expect the opportunity for Ampol is to run these sites better, which is underappreciated by the market, given the deterioration in EG Australia’s profitability following EG’s $1.7bn acquisition from Woolworths in 2018,” Raymond added.
Shares in Ampol were up 2.5 per cent to $34.63 late in Wednesday’s session, outperforming the broader market.
Metro Petroleum, owned by Dib Group, already owns more than 300 branded service stations across NSW, Victoria, Queensland and Western Australia and will now add the 41 sites that Ampol is required to sell under its agreement with the ACCC.
The price of the sale has not been disclosed.
ACCC Commissioner Philip Williams said without the divestments, Ampol’s acquisition of EG could have cut competition in the supply of petrol or diesel in 39 local markets where Ampol sites overlapped with EG ones.
“We believe Metro Petroleum’s acquisition of the divested sites would result in the creation, or expansion, of a strong, independent and viable long-term competitor in the 39 local markets,” Williams said.
The EG acquisition is among the first to be considered under the ACCC’s new merger rules, which impose a mandatory notification system for deals above a certain threshold.
ACCC chair Gina Cass-Gottlieb said in April that the new regime was approving more than 90 per cent of corporate deals within 20 business days, allaying concerns from the business sector that acquisitions could be delayed.
The Ampol deal is expected to be completed by June 30.
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