Woolies servo deal adds $1.8bn to coffers

SUPERMARKET operator Woolworths will top up its warchest for the battle against Coles by an additional $1.79 billion after agreeing to sell its Australian petrol station network to global energy titan BP.

SUPERMARKET operator Woolworths will top up its warchest for the battle against Coles by an additional $1.79 billion after agreeing to sell its Australian petrol station network to global energy titan BP.

Woolworths said the deal will allow it to stiffen up its balance sheet and reinvest in its core businesses, marking the latest step in an ongoing transformation under chief executive Brad Banducci.

Inked on Christmas Eve, the deal — which replaces a previous tie-up with Caltex Australia — was lodged with the Australian share market operator yesterday as post-Christmas trading resumed.

Under the arrangement, BP will rebrand Woolworths’ 527 existing petrol stations and a further 16 under construction.

The British-based multinational will preserve Woolworths’ popular fuel discount offering for at least 10 years and extend it to outlets within its 350-strong Australian network. BP also supplies fuel and branding to an additional 1050 independently-owned sites.

The pair will trial a new convenience food format — offering take-home meals and fresh produce — at 16 select outlets, with an intent to roll it out to up to 200 BP petrol stations, echoing a strategy between BP and retailer Marks and Spencer in the UK.

Woolworths chief executive Brad Banducci. Picture: Brett Costello

Woolworths aims to enlist BP as a partner in its loyalty scheme, under which customers can earn Qantas Frequent Flyer points for purchases. BP would likely need to exit an existing arrangement with Virgin Australia.

“It will result in Woolworths having a larger platform for our redemption and reward program, as well as providing us with a unique opportunity to partner with and draw on BP’s success in rolling out market-leading convenience food offers globally,” Mr Banducci said in the statement to the stock exchange.

Woolworths said it did not expect any material impact from the sale of the fuel business, which had sales of $4.6 billion and earnings of $117.8 million in the year to June 26.

The tie-up ends any hope Caltex — which had lobbed its own confidential offer — had of securing the business.

That outcome appeared increasingly unlikely after the oil refiner purchased Gull New Zealand’s import terminal and 77 fuel outlets in a $325 million deal late last week.

The deal by the numbers.

Caltex chief Julian Segan on Wednesday said while it was disappointing its existing fuel alliance with Woolworths — in which it supplies 3.5 billion ­litres of fuel annually — would not continue, it was “important that we exercise financial discipline in pursuing growth”.

The move also comes little more than two weeks after Woolworths closed its chain of Masters hardware stores, the failed venture costing the retailer and its US joint partner more than $3 billion.

Since taking the helm in February, Mr Banducci has cut jobs and reduced the number of store openings while grocery sales have begun to grow again, presenting a fresh challenge for Coles-owner Wesfarmers.

IG market analyst Gary Burton said it was clear Woolworths was “on a mission” to get its retail sales back on track, while Caltex now had a major local competitor in BP.

“After Caltex bought Gull, Woolies might have thought they got the rough end of the stick. Woolies took the second offer, it would appear,” Mr Burton said.

The deal requires competition and foreign investment regulatory approvals and is expected to be completed no earlier than January 2, 2018.

Woolworths’ existing co-branded Caltex outlets will continue to operate in the interim. Woolworths shares closed 1.9 per cent higher at $24.31 while Caltex dropped 2 per cent to $29.99.

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