Another one bites the dust - no it’s not a Queen revival but news that the long-running takeover attack from a Canadian firm Alimentation Couche Tard (ACD) for Caltex has gone south, a victim of COVID-19.
Despite continuing optimism from brokers, the chances of Caltex Australia being taken over, look more and more remote with the oil price dropping so fast that the company's hedges are not able to cope.
Caltex Australia has become another company to cut dividends after a weak result for 2019, a situation compounded by the takeover interest in the company that in turn has stopped the company from finding a replacement to departing CEO, Julian Segal.
Convenience store operator and oil refiner, Caltex Australia says the $8.6 billion, $34.50 a share surprise from Canadian group, Alimentation Couche-Tard (ACT) isn’t enough and like Oliver Twist, wants more.
Caltex has received a conditional proposal from Alimentation Couche-Tard. The proposal permits Caltex to pay a special dividend, neutralising the attractiveness of alternative strategies further distributing franking credits, Credit Suisse observes.
Caltex proposes to sell a 49% interest in 250 freehold fuel retail sites, representing most of its freehold retail holdings. Superficially, the proposed divestment of the freehold retail sites is attractive and from an economic perspective Credit Suisse is favourably disposed to monetising the assets.
Credit Suisse observes the first quarter trading update has confirmed previous disclosures regarding margin compression in fuel retailing and poor refiner margins. The broker believes retail fuel margins are likely to remain an uncertain factor for the remainder of the first half.
Caltex has guided to first quarter convenience retail earnings (EBIT) of $160-180m. UBS suspects some of the retail margin headwinds will abate in the second half as crude prices drop and US production lifts.