Ampol Deal Looking Less Likely as Canadians Weigh Options

Despite the failed attempt to cuddle up to Europe’s biggest supermarket chain, Carrefour, there’s no sign that Canadian convenience store operator Alimentation Couche-Tard (ACT) plans to revive its bid for Ampol (formerly Caltex Australia).

ACT’s approach to Carrefour was blocked by the French government and, according to Reuters, the Montreal-based giant’s CEO Brian Hannasch still seems to be more interested in the French company than anything else.

Couche-Tard’s $US20 billion approach for Carrefour was rejected by the French government on food security concerns and brought criticisms from some analysts and shareholder groups in Canada.

As a result ACT has been forced to quietly reassure shareholders about its strategy because the surprise plan to buy Carrefour “befuddled investors and cast doubt about the stock’s short-term prospects,” as Reuters described the reaction last week.

The bid for Carrefour pushed the Quebec-based company into unchartered territory – an untested market, a relative new business segment and its biggest deal yet – surprising shareholders.

And more importantly for shareholders and analysts, ACT failed to explain why it wanted to expand into a low margin business like supermarkets in Europe and some overseas markets (such as Argentina) when its own convenience store business had such high margins.

Investors have marked down the stock 13% since the news of the bid emerged earlier this month – though the fall eased last week and the shares ended with a small gain over the five days after the briefing sessions with investors.

The Carrefour move was the latest manifestation of the July 2019 announcement from Couche-Tard that it planned to double its net earnings in the next five years.

Since then, the company launched, then dropped plans to buy Ampol and its convenience store and petrol station outlets because of the onset of COVID-19 and the slump in demand for petrol.

Reuters says that deal has yet to be revived and there doesn’t appear to be any change planned soon.

ACT’s move into groceries would help Couche-Tard diversify from its core fuels business which faces threat from rapid growth in electric vehicles, something reviving a bid for Ampol would not achieve.

“It is hard to understand what the desire is to move toward grocery, particularly in Europe,” said Mike Archibald, a portfolio manager at AGF Investments, pointing to “significantly lower” margin in grocery business compared with Couche-Tard’s core operations – Reuters reported.

He said grocery retailing is not the sweet spot of Couche-Tard’s strategy but the company is “tremendously good” at expanding retail gas and convenience stores. AGF owns Couche-Tard shares.

Finally, Reuters pointed out that for now, Couche-Tard’s dual-class structure gives its four founders (including Executive Chairman Alain Bouchard) super voting rights, meaning ordinary shareholders have little say in approving deals, an advantage that expires in 11 months.

Meanwhile Ampol shares slipped on Monday after the firm finished a $300 million off-market buyback of 11.4 million shares.

Ampol said the buyback was completed at a 14 per cent discount $26.34 per share, with an 89.4 per cent scale back of successful tenders due to strong demand.

The buyback equals 4.6 per cent of the company’s issued capital.

Ampol – formerly Caltex Australia – also said it has requested a class ruling from the Australian Taxation Office in relation to the tax implications of the deal.

Ampol shares fell 5% to end at $29.24.

The share buyback came from the sale of 49% of some of its convenience store real estate sites to an institutional investors last year.

That deal and the buyback were announced after ACT pulled its bid and have made a return by the Canadian company more problematic.

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →