Caltex Australia has been forced to disclose a beefed-up, all-cash $8.6 billion takeover approach from acquisitive Canadian group Alimentation Couche-Tard after news of the takeover interest leaked into the market.
The petrol and convenience retailer only on Monday revealed a plan to spin off some of its service station sites in an IPO, a move that would derail the takeover ambitions of its suitor, owner of the Circle K brand well known throughout Asia.
Caltex told the ASX on Tuesday than it had received an indicative proposal to acquire all of its shares for $34.50 apiece, less any dividends.
The conditional offer, representing a premium of 15.8 per cent over Caltex’s closing share price on Monday, is the second it has received. It rejected as inadequate an earlier approach from the same bidder, made on October 11, at $32 per share, a price that at the time represented about a 25 per cent premium.
Shares in Caltex surged as much as 12.7 per cent to $33.56 on Tuesday after a delayed start. They were at $33.52 just after midday.
The overtures from Couche-Tard, which has a strong track record of growth by acquisition, were first revealed by The Australian Financial Review’s Street Talk column on Monday night and confirmed on Tuesday morning.
Couche-Tard operates in 27 countries, selling 43 million gallons a day of fuel and about three quarters of a million cups of coffee.
It has completed 60 deals since 2004, adding some 10,200 stories and highlighted in a recent presentation to investors that “significant runway remains globally” for growth, with a focus on the US and Asia.
More than 2150 stores operate under its Circle K brand outside North America and Europe, in countries including New Zealand, Cambodia, Hong Kong and Saudi Arabia.
Couche-Tard, which invested earlier this year in a cannabis retailer in Canada, is understood to have been circling potential targets in Australia’s fuel sector for months, advised by Goldman Sachs. It was among those that took a look at the Woolworths petrol station business that was eventually sold to UK-based EG Group.
Caltex said the talks with the Canadian group over its “highly conditional” offer were at a preliminary stage and there was no certainty of any deal.
“The Caltex Board is focused on maximising shareholder value and will carefully consider any proposal that is consistent with this objective,” it added.
It said the board is “currently considering the proposal, including obtaining advice from its financial and legal advisers”. It is being advised by UBS and Grant Samuel, with Herbert Smith Freehills on the legal side.
The public outing of the proposals comes a day after Caltex announced it would unlock value with an initial public offering of up to 49 per cent of 250 freehold petrol stations. It is understood not to have intended to disclose the takeover approach until confidentiality was lost.
Caltex said the announcement of the IPO, which has been months in the works and is the result of a review of its retail sites announced in August, “is not related” to the Couche-Tard approach.
However the fuels company has been under increasing pressure to unlock value that was not being recognised in the market after rejecting last year a more significant demerger or spin-off. It also has a huge franking credit balance, worth $834 million at June 30, which investors want to see value from.
Couche-Tard is understood to be proposing two options to Caltex on the franking credits, including a special dividend of about $3 a share that could be worth about $8 a share for some shareholders depending on their tax situation.
Citigroup analyst James Byrne calculates that Caltex’s proposed sale of a 49 per cent stake in 250 sites will raise about $700 million that the company could use to buy back shares, increasing earnings per share by about 5 per cent.
In a note released before the takeover approach was confirmed, Mr Byrne said the Financial Review’s theory that the spin-off was a poison pill for a suitor “would make sense as the freehold IPO would remove one avenue for a capital release to pay down debt used to fund a leveraged acquisition of Caltex”.
Couche-Tard’s proposal is subject to several conditions, including due diligence, financing and a unanimous recommendation by the Caltex board. It is also subject to approval by the Foreign Investment Review Board.
Another condition involves no material asset sales, signalling that the proposed IPO would be a deal-breaker. However Caltex is understood to believe it can potentially progress discussions with Couche-Tard as well as advancing the IPO.
Caltex is already in a state of flux with chief executive Julian Segal advising in August that he would be stepping down after 10 years at the helm. A successor has yet to be announced.
Neither Mr Segal nor Caltex chief financial officer Matt Halliday was available to comment on Tuesday morning.
Earlier this month, Woolworths and Caltex said a new chain of stores selling fresh food, groceries and fuel would raise the bar in the $8.5 billion convenience sector and change the way people shop.