BP Plc (IW 1000/9) will pay A$1.785 billion (US$1.3 billion) for Woolworths Ltd.’s network of Australian gas stations in a deal that will cement the London-based oil company as one of the nation’s biggest fuel providers.
The British energy company will acquire 527 fuel outlets that are currently supplied by rival Caltex Australia Ltd., as well as 16 development sites, according to a statement Wednesday from Sydney-based supermarket owner Woolworths. BP already owns 350 retail locations across Australia and supplies fuel to an additional 1,000 outlets owned by independent business partners, according to a separate statement from the oil company. BP and Woolworths also agreed to a partnership that includes the continuation and expansion of a scheme providing fuel discounts for supermarket customers.
BP has previously struck deals with retailers including Marks & Spencer Plc in the U.K. and REWE in Germany. For Woolworths, the sale is part of Chief Executive Officer Brad Banducci’s strategy to reverse the supermarket chain’s declining fortunes. Since being named as CEO in February, Banducci has cut jobs, written off assets and slowed store openings, while sales at its Australian food division have started growing again.
The sale is “positive at the margin” for Woolworths, according to Michael McCarthy, chief market strategist at Sydney-based CMC Markets Asia Pacific Pty. “Woolworths’ management were just keen to do any deal. While it is good that there’s movement, this was probably the easiest to do and probably the one that makes the least difference.”
BP’s proposal met Woolworths’ “strategic and broader commercial imperatives,” Banducci said. The proceeds will be reinvested in Woolworths’ main business and the deal isn’t expected to have a material impact on earnings, the company said.
Caltex, which has been the exclusive supplier of petrol and diesel to the Woolworths outlets, had also expressed an interest in purchasing the business. Caltex Chief Executive Officer Julian Segal said in a statement that while the Sydney-based refiner and distributor is “disappointed that the successful fuel alliance will come to an end, it is important that we exercise financial discipline in pursuing growth.”
Bucking the Trend
The purchase by BP represents a departure from the trend of recent years that’s seen a smaller proportion of Australia’s retail fuel operators being owned by major oil companies. There are about 6,400 outlets Down Under and while about 52% were affiliated with one of the four major oil companies operating in Australia as of January this year, only 9% were directly controlled by them, according to a report from the Australasian Convenience and Petroleum Marketers Association.
Woolworths shares climbed 2% to A$24.32 as of 12:05 p.m. Wednesday in Sydney. The stock is up 19% from the almost 10-year low it reached in July. Caltex slid 0.7% to A$30.39 and is down 19% this year. BP has risen 42% this year.
Completion of the transaction is not expected before Jan. 2, 2018, and is subject to regulatory approvals.
By Ruth Liew