Anthony Macdonald James Thomson
Woolworths will sell its petrol station portfolio to BP in a $1.8 billion deal that will help the retail giant fund its ongoing fight to regain market share in the grocery sector.
It is understood the deal was signed over Christmas and ended the two parties’ months of negotiations around price, loyalty agreements, fuel discount vouchers and their respective convenience strategies.
Under the terms of the deal, BP will get 500 Woolworths-branded fuel and convenience outlets.
It is understood BP will pay $1.8 billion cash and other benefits to Woolworths. The funds are expected to shore up Woolworths’ balance sheet and help fund chief executive Brad Banducci’s supermarkets strategy.
Woolworths did not comment on Tuesday.
The deal is expected to be announced on December 28 – the first day of share market trading since Christmas.
The Woolworths network sells about 4 billion litres of fuel a year and had earnings of around $130 million to $150 million.
It is expected to create one of the country’s largest fuel and convenience retailer networks, level-pegging with the ASX-listed Caltex.
Under the deal, which was foreshadowed by the Street Talk column, it is expected Woolworths “Metro” brand will be retained across the network and Woolworths will continue to supply the stores.
This will allow Mr Banducci to continue with the retailer’s push into the important convenience market, where it has aimed its small-format Metro stores, and will see the grocer continue to offer its 4c a litre discount vouchers.
BP has experience with this model. In 2004 it partnered with British retail icon Marks & Spencer and has now rolled out almost 250 petrol station stores under the Simply Food brand. Under that deal, BP operates the stores and takes an undisclosed share of profits.This week the head of BP’s downstream business, Tufan Erginbilgic, said the company was looking to replicate the strategy outside Britain; it has a deal in Germany and said it was in talks with three other retailers around the world. “It is a global strategy,” Mr Erginbilgic told The Telegraph of London. “The more we roll out, the more differentiated our offer will be – and earnings will obviously grow.”
The deal will require the approval of the Australian Competition and Consumer Commission. ACCC chairman Rod Sims made it clear that the deal is firmly on his radar. The Australian petrol sector is dominated by Caltex Australia and Viva Energy, which operates the Shell brand; the pair have nearly half of the market. It is understood that BP is preparing to argue that the tie-up would make BP a similar size to Caltex. The deal is expected to take about 12 months to complete.
BP edged out Caltex Australia in the race for the Woolworths network. In a move that appeared to pre-empt the Woolworths decision, Caltex announced on December 22 that it had paid $324 million for fuel distributor Gull New Zealand in a deal that will see it grab 5 per cent of the Kiwi market, including a fuel import terminal in the North Island and 77 retail outlets.
Morgan Stanley ran the auction for Woolworths.
Anthony Macdonald James Thomson