Three's company in bid for Woolworths petrol station portfolio

Sarah Thompson Anthony Macdonald Joyce Moullakis
Oct 3 2016
AFR
It’s a three-horse race for Woolworths’ $1.6 billion-plus petrol station portfolio.
Street Talk understands the sale is down to offshore giants BP and Vitol – both self-advised in the auction – and Caltex Australia, which has investment bank UBS in its corner.
It’s understood first round bids went in about 10-days ago, with Morgan Stanley in Woolworths’ corner to test the interest as first reported by Street Talk.
Also there was Trafigura’s Puma Energy, although Dutch and Republic of Angola-backed Puma has been left behind as Woolworths progresses with its top three prospective buyers.
It is understood the buyers are still waiting to hear back from Woolworths. It’ll be interesting to see whether the supermarkets giants takes the auction into a second and final stage or progresses talks with only one of the parties.
After-all, it is not a straight forward two-stage sale process.
Only selected industry players were approached to bid for the assets, and Street Talk has spoken to interested parties including infrastructure-type investors who were quietly kicking tyres a few months ago but never received an invite into the auction.
It’s not a straight forward shoot out because price appears to be about the fourth priority for new Woolworths’ combination, Gordon Cairns and Brad Banducci.
Whatever happens to the petrol business, key for the retailer’s top dogs is that Woolworths remains as a supplier to the 500-odd Woolworths branded stores and 92 “Star Mart” Caltex sites.
Banducci is keen on the “food-to-go” pre-packaged meals type offering and the service station sites are a key leg to the distribution strategy. Woolworths’ other priorities include protecting its loyalty program and preservation of the 4¢ a litre redemption program.
Woolworths does not need to own the petrol sites to gain the benefits of any of the above.
And then comes the price.
Analysts reckon Woolworths’ petrol sells about 4 billion litres a year and generates about $130 million to $150 million in annual earnings before interest and tax.
While the business would be worth different amounts to each of the interested parties, you would have to think it means the most to Caltex. ASX-listed Caltex’s existing relationship with Woolworths means it supplies the 4 billion-odd litres of fuel to Woolworths’ sites every year.
And while there are long-term supply arrangements in place with Caltex, the interested parties will no doubt be looking for ways to skirt them. And given the nature of the interested parties, it would appear they’re confident of finding a resolution.
Perhaps the most interesting party is Dutch group Vitol, which has an existing relationship with Coles. It is no secret in corporate Australia that one must choose between Woolworths and Wesfarmers-backed Coles. So if Vitol all of a sudden picked up the Woolworths portfolio, what would that mean for its Coles business?
The other factor is the Australian Competition and Consumer Commission. Woolworths has 21.6 per cent of the $36 billion-a-year fuel retailing market in Australia, while Wesfarmers has 21.7 per cent, Caltex 16.8 per cent and BP Australia 11.1 per cent. Other players include 7-Eleven, United Petroleum and Puma Energy.
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