Weighing value on Couche-Tard’s Caltex bid

Canada’s Couche-Tard is telling investor franking credits are key part of the appeal of its offer for Caltex.

Canada’s Couche—Tard may only have to raise its offer slightly to get in the door at Caltex.

The Caltex board will decide before the market opens on Tuesday whether to accept the $10 billion bid by Canada based Couche-Tard.

The decision will be to simply open the books for due diligence which is strongly supported by shareholders, led by Australian Super.

But the problem with accepting a $34.50 offer to conduct due diligence is it implies Stephen Gregg and the Caltex board would be happy to sell the company at that price.

The reality is Gregg will need some convincing to accept a bid at that level.

He is coming off 12 months in which Caltex has underperformed the market in total shareholder returns by 15 per cent and having already rejected $32 a share.

Couche-Tard is telling everyone there is $3.61 in value in the franking credits which will be unlocked with its offer.

READ MORE: Bid puts Caltex assets in spotlight | $8.6bn bid ‘undervalues’ Caltex

Caltex says the real figure is closer to $1.70.

The debate is important because the value of franking credits is being used by Couche Tard as a reason it doesn’t need to increase the value of its bid because the “real” value is already closer to $36.20 on Caltex numbers.

The market is expecting Caltex to pay a dividend of 50 cents a share which will be deducted from the offer price. So instead of being $34.50 it will be $34 plus the dividend you were going to get anyway.

That debate again goes to the bid value and premium on the price before the bid was leaked at $29.79.

This makes the premium a skinny 16 per cent but includes the bounce Caltex enjoyed after unveiling its property float last Monday.

The decision to announce the float it seems was prompted by the Couche Tard offer because Caltex’s Gregg wanted to show shareholders he was looking to increase value.

Having already rejected $32 a share one assumes Gregg and his Caltex comrades had a fair view of what was value.

The week it has taken since the strategic leak of the bid then makes you wonder why the board needs so long to reject the offer on the table.

This said it is an even money call which way it jumps and from here. It seems that Couche Tard will only have to lift its offer marginally to get in the door.

As to what happens when and if it gains control that remains to be seen.

The Canadians are rejecting any talk of a joint bid with Brookfield, which of course doesn’t rule out asset sales post the acquisition.