Investor challenges Caltex’s rejection of Couche-Tard bid

Caltex’s rejection of an $8.6bn takeover approach by Couche-Tard has been questioned by an institutional investor.

Merlon Capital Partners says it was disappointed by Caltex’s reaction to the takeover offer.

Caltex’s rejection of an $8.6bn takeover approach by Couche-Tard has been questioned by an institutional investor which has raised concerns about the ability of the fuel retailer to free up extra value via a raft of new initiatives, including a retail turnaround.

The fuel retailer’s board rebuffed a $34.50 bid by the Canadian giant this week after major shareholders complained the offer undervalued the company and failed to recognise the value of plans. including a planned $1bn property spin-off.

The Sydney-based company revealed some new plans to boost value on Thursday, including a hybrid raising of up to $500m and a $136m sell-off of petrol stations along with the goal of a $195m earnings boost by 2024 from its main fuels unit and a reboot of its convenience retail business.

However, shareholder Merlon Capital Partners said it was disappointed by Caltex’s reaction to the takeover offer and held concerns about the retail revamp.

The investor met with Caltex chairman Steven Gregg on Thursday evening to voice its concerns in person following the company’s investor day.

“As Caltex shareholders we are concerned that Couche-Tard is not being provided a fair and reasonable opportunity to engage in a way that maximises value for shareholders,” Merlon said in a letter sent to Caltex on Wednesday. “We are also very concerned that you believe the proposal undervalues Caltex.”

While Caltex has offered a period of limited due diligence to Couche-Tard, the two companies have been at odds over both the premium calculations of the $34.50 offer and disagreements on the market value of franking credits that could be unlocked for Australian shareholders should a deal be struck.

Merlon, which holds 1 per cent of Caltex stock, said it harboured particular concerns over Caltex’s dismissal of the Canadian suitors’ franking credits offer.

“The manner in which Caltex has subsequently represented the value of franking credits is inconsistent with any precedent transaction and reduces our confidence in the directors’ ability to assess the transaction on its merits.”

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

Caltex responded to Merlon’s criticism by saying its decision to reject the bid included feedback from a range of major investors.

“We respect the views of all shareholders and value the contribution many seek to make in the current circumstances,” a Caltex spokesman said. “The overwhelming view among investors, as a number have expressed in public commentary, is that the proposal undervalues the company and does not represent compelling value for Caltex’s shareholders.”

Merlon also questioned Caltex’s long-awaited revitalisation of its retail sites.

“Your confidence in managements’ ability to implement a major retail transformation agenda is remarkable given you are yet to appoint a CEO to hold accountable for the outcomes and your CFO with no retailing experience only commenced in April.” Caltex confirmed it has yet to receive any response from the Canadian company and named its fuels and infrastructure head Louise Warner as a potential successor to outgoing boss Julian Segal.

“On Tuesday I spoke to Brian Hannasch at 5am and let him know that after all the due consideration we would be declining their offer,” Mr Gregg told the company’s annual investor day. “I also made it very clear to Brian that they are a credible firm and we have respect for their firm and that we would be engaging with them to have a chat about sitting down with them and going through some non-public information. We’re yet to hear back but I assume we will hear back soon.”

The company also hinted it was nearing a decision on Mr Segal’s successor after the long-serving chief signalled in August his plans to step down.

“We have a short list of some extremely qualified and credible external candidates and we have one extremely qualified and credible internal candidate in Louise and I will be in a position to make a decision on that in the near future,” Mr Gregg said.

Caltex also provided an update on its own capital initiatives with plans to issue hybrid securities of $300m to $500m as part of its ongoing capital management strategy.

It expects a proposed sharemarket float of 250 retail sites would have an implied valuation of between $1.455bn and $2bn on a 100 per cent ownership basis based on a cap rate of 5-5.5 per cent and starting rent of $80m to $100m a year.

The Sydney-based company would gain between $713m and $980m if a full 49 per cent stake is sold via the IPO as planned.

Caltex shares rose 0.23 per cent to $34.38.