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Mergers & Acquisitions

Caltex Australia Angling for Higher Bid From Couche-Tard

Acquisition would be Canadian company's biggest deal ever

MELBOURNE, Australia — Top executives at Caltex Australia said they would work with suitor Alimentation Couche-Tard Inc. to elicit a higher acquisition bid after rejecting its $5.84 billion offer for the Australian fuel supplier and convenience-store operator, according to a Reuters report.

*Couche-Tard is No. 2 in CSP's 2019 Top 202 ranking of U.S. c-store chains by number of company-owned retail outlets.

After Caltex Australia rejected the bid, saying that it “undervalues” the company, it offered to give Couche-Tard access to nonpublic information so that it could make a higher bid.

Caltex Australia Chief Financial Officer Matt Halliday said the company considers Couche-Tard a “very serious and credible” bidder. “We think the right approach is to be constructive to try and help them to come back with a compelling offer,” he told analysts at a strategy briefing, according to the news agency. Halliday said Couche-Tard has yet to respond to Caltex Australia’s offer of access to the nonpublic information.

The comments came after Caltex Australia said its earnings would fall this year. It also announced it had sold 25 fuel sites to release capital and would use the bond markets to raise $205 million to $335 million. Caltex said the sale of 25 sites for nearly $91 million to two buyers who plan to use them for retail and residential developments had been planned before Couche-Tard’s approach, Reuters reported.

Meanwhile, an institutional investor has raised concerns about the ability of Caltex Australia to free up extra value through new initiatives, including a retail turnaround, reported the Australian Business Review.

Melbourne, Australia-based Caltex Australia has a network of approximately 1,900 company-owned or -affiliated sites, including more than 500 Star Mart brand locations. At an enterprise value of about $10 billion, it would be Couche-Tard's biggest acquisition ever, after more than 60 deals completed since 2004 that have added more than 10,000 stores globally, said a report by the Australian Financial Review.

Buying Caltex Australia would also extend Couche-Tard beyond its traditional area of convenience stores and fuel stations into oil refining, fuels trading and importing, the report said. It could also provide a springboard for the company to accomplish a long-stated goal of expanding in the Asia-Pacific region.

"If Couche-Tard were to acquire Caltex at a reasonable multiple, express its plans for the nonretail assets and provide a road map for earnings to return to previous levels, we believe this acquisition could result in multiple expansion for [Couche-Tard], as the company has been communicating an Asia-Pacific strategy to investors for the past few years," BMO Capital Markets analyst Peter Sklar said in a note cited by the Financial Review.

Desjardins analyst Keith Howlett suggests Couche-Tard would want to lock in a fuel supply deal with the refinery, but not own it, reported the Financial Review. Couche-Tard's ''objective, in our view, is to extract for itself the retail fuel and convenience business from the other assets, together with a fuel contract arrangement with the refinery'," he said.

While Couche-Tard CEO Brian Hannasch said the company was a "committed buyer" of all of Caltex, there is speculation it has already been sounding out potential new owners of the company's refinery so it can focus on the convenience stores, the report said.

As of October 2019, Laval, Quebec-based Couche-Tard’s network included 9,815 c-stores in North America covering 48 U.S. states, mostly under the Circle K and Holiday Stationstores banners, and all 10 provinces in Canada, under the Circle K and Couche-Tard banners. In Europe, Couche-Tard operates a retail network in Scandinavia, Ireland, Poland, the Baltics and Russia consisting of 2,708 stores. In addition, licensees operate approximately 2,280 stores under the Circle K banner in 16 other countries and territories (Cambodia, China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Jamaica, Macau, Mexico, Mongolia, New Zealand, Saudi Arabia, the United Arab Emirates and Vietnam), which brings its worldwide total network to more than 14,800 stores.

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