BP abandons Woolworths fuel network purchase

Jessica Gardner, Angela Macdonald-Smith, Sue Mitchell
June 21, 2018
AFR

BP has walked away from its proposed $1.8 billion purchase of Woolworths’ retail fuel and convenience network after unsuccessfully trying to restructure the deal to overcome competition objections.

The decision leaves Woolworths free to consider other suitors for the business or consider a demerger and separate listing.

The deal, originally struck in December 2016, was knocked back by the Australian Competition and Consumer Commission in December 2017 and BP had initially strongly signalled it would challenge the regulator’s ruling.

However on Thursday the company, which had said “the transaction cannot be structured to meet its strategic objectives.”

BP’s chief operating officer for Asia-Pacific, Andy Holmes, said he is still very confident of delivering the fuels supplier’s strategy for “strong market-led growth to 2021” with a focus on safety, reliability, increased efficiency and modernisation.

The deal agreement was due to lapse next week and Woolworths chief executive Brad Banducci said last month the retailer was “working through the myriad of options we have”, noting it had received expressions of interest from other potential partners. 

“We’ve had lots of expressions of interest from parties, we’re very cognisant of the challenges posed by the ACCC, we’re developing a package of options acceptable to the ACCC – it’s at the top of our list of priorities,” Mr Banducci said.

Woolworths confirmed on Thursday it had been notified by BP of its decision.

“As a result, the sale agreements, and strategic partnership agreements, entered with BP on 24 December 2016 will no longer be continued by BP,” Woolworths said.

“As previously announced, Woolworths Group is continuing to engage actively with alternative options for its Petrol business.”

Woolworths originally planned to use the $1.78 billion proceeds from the sale to reduce debt, fund supermarket refurbishments and possibly also return capital to shareholders.

However, when the ACCC knocked back the deal last December Mr Banducci said the retailer’s plans to refurbish 80 stores this year were not contingent on completing the sale.

Woolworths is in a much better financial position now than it was when it first put the fuel business on the market almost two years ago.

Analysts believe there may be merit in Woolworths keeping the fuel business, as the 530-odd petrol outlets could be used to  expand its convenience store, online and click and collect operations.

In a note on Thursday UBS analysts said Woolworths had three options –  sell fuels to an alternative party (one of which could be its current fuel supplier Caltex Australia), de-merge the business and list it as a separate entity, or retain the business.

UBS said retention was only likely if other offers were deemed inadequate or if the sale process would take too long, i.e. beyond 2018. 

For Caltex, the collapse of the BP deal provides a reprieve from the loss of a 3.6 billion litres a year wholesale supply contract with the supermarket chain which would have ended when Woolworths sold the fuel network.

Caltex has previously told investors the impact of losing the Woolworths contract would be about $150 million in earnings before interest and tax.  Caltex has turned to acquisitions to help close the earnings gap.

UBS said that while Woolworths still intended to divest fuels, the likelihood of Caltex retaining its fuel supply deal had increased.

“We believe on balance Caltex is likely to retain the supply agreement, albeit a change in control could trigger a change in terms,” UBS said.

The development comes amid a period of flux for the petrol and diesel supply sector, including the imminent $5 billion-odd float of Viva Energy, and an expected further restructuring of Caltex, potentially involving a spin-off.