Caltex rejects Couche-Tard takeover bid

Caltex has rejected a $8.6bn takeover bid by Canada’s Couche-Tard but left the door open for a better offer.

Caltex has left the door open for a better offer. Picture: Supplied.

Fuel retailer Caltex has rejected a $8.6bn takeover bid by Couche-Tard but left the door open for the Canadian convenience giant to return with a higher offer after granting limited due diligence to its suitor.

Caltex said the $34.50 per share offer on the table undervalued the company and did not represent “compelling value” for shareholders but said it would provide selected non-public information to the multinational.

The offer — Couche-Tard’s second bid after an earlier $32 offer was rejected in October — only represented a 16 per cent premium to its closing share price on November 25 before the offer was disclosed, Caltex said.

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“It was a pretty skinny premium,” Caltex chief financial officer Matt Halliday told The Australian. “But at the same time there was a view that we should be constructive and should provide some access — not due diligence — but some access to management and non-public information that will allow them to be better informed and to come back with a more compelling proposal.”

A string of major Caltex shareholders including Investors Mutual, Airlie Funds Management and Pengana Capital all said the offer undervalued the company and a bid of closer to $40 a share was required to get a deal over the line.

Caltex’s board deemed the offer undervalued the company, citing the strategic value of its assets, the performance of its fuels and infrastructure unit, its earnings being at a low point in the cycle, future growth in its convenience retail business and a planned $1bn property spin-off.

However, Couche-Tard’s side had a different take on Caltex’s claim of a “skinny” premium.

It disputes basing the calculation on the November 25 closing share price, given the stock had jumped 7 per cent that day after the company announced its planned $1bn property spin-off.

Using the November 22 closing share price — before the IPO announcement was made — would equate to a 23.9 per cent premium, while stretching back to the day before the original bid was lobbed on October 11 would mean a 35.7 per cent jump.

Still, Caltex said it would not budge on its stance and noted if the deal had not been leaked its share price would have jumped higher after its IPO announcement, reflecting broker upgrades. It also noted the value of the offer would reduce when a dividend of about 50c a share is paid for the December half.

The rejection “does not come as a significant surprise”, according to RBC, with its original view still holding that an additional bump in the offer was required to get a deal sealed.

Part of Couche-Tard’s pitch for the Caltex deal is unlocking $830m of franking credits, with plans to pay a special dividend of up to $8.41 a share to release the credits, boosting the deal value by up to $3.61 per share.

However, Caltex also differed on this point, arguing most of its shareholders would not receive the cash benefits proposed by the Canadian company and noting franking credit distributions would differ depending on investors’ tax rates.

Caltex estimates shareholders would gain about $1.66 per share — or half of Couche-Tard’s assessment — based on a superannuation fund shareholder being taxed at 15 per cent.

“Their $3.61 number is assuming a shareholder with a tax rate of zero per cent which is obviously not representative of our shareholder base and so we don’t think is appropriate,” Mr Halliday said. “We’re very comfortable that we’re looking at it in a very reasonable way.”

Couche-Tard argues the established market practice for both bidders and targets in such takeover deals is to show the maximum value of franking credits available to shareholders who can utilise them.

The Canadian company had hoped to gain a four-week period of due diligence but instead will receive select materials on a confidential basis and meetings with Caltex management this month should it pursue the option.

“We want to offer them a pathway to have some information that can help them if they choose to come back with does look like a compelling proposal,” Mr Halliday said. “They’ve received the response so they’ll digest that and come back to us soon I imagine.”

Caltex, which will host its annual investor day on Thursday, saw its shares fall 0.78 per cent to $34.49.