It certainly has been a long road for shareholders in fuel and convenience store operator, Caltex Australia Ltd [ASX:CTX]. After reaching just short of $39 in 2016, the Caltex share price has been on a steady slide.
A profit downgrade in June this year only added to Caltex’s woes. Then the share price sank below $21 as investors bailed out of the stock.
However, as we have found out, overseas investors have been running their ruler over Caltex’s books. Today, Canadian retail giant Alimentation Couche-Tard made a conditional $8.6 billion bid to seize ownership of Caltex.
Why did Caltex fall?
Caltex has been up against it on many fronts. Its sole remaining refinery in Australia just doesn’t have the scale to compete against much larger and newer refineries, like those in Singapore.
Although Caltex is a producer, it is also an importer of fuel and oils. And that makes it susceptible to swings in the currency market. As the Aussie dollar has headed south, imported fuels have cost more, putting a clamp on Caltex’s already thin margins.
To counter thin and ever so slightly falling volumes, Caltex has been busily trying to expand its retail footprint. Its retail concept, The Foodary, has enabled Caltex to sell items (like food and soft drink) that enjoy much higher margins than petrol.
What will happen next?
As Caltex pointed out clearly in its update to the ASX, the bid is non-binding and highly conditional. Caltex also stated that there is ‘no certainty that (the) discussions will result in a transaction’.
However, the market seems to be confident the deal might go ahead. The Caltex share price surged on the news, trading nearly 15% higher than its prior close, when Caltex came out of its trading halt. That’s a big move in anyone’s language, particularly a company the size of Caltex.
There are a swag of conditions that need to be met for the deal to get up. Not least of which is approval from the boards (unanimous approval in the case of Caltex) and the foreign investment review board (FIRB). Plus, the Canadian suitor needs to arrange finance and conduct due diligence.
If the deal does get up, it should be a boon for Caltex shareholders. However, it will mean yet another Australian company falling into the hands of international interests.
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