EG Group concedes to Ampol’s price demands for 500 Australian service stations

Ampol is embarking on a major transaction that will see it double down on fuel retail. Picture: David Clark

Hampered by high debt levels and falling profits, EG Group has finally bitten the bullet and met Ampol on price for a sale of its Australian portfolio, which has been on the table for almost a year.

Ampol said it would buy EG Group’s Australian business for $1.1bn, in a transaction advised by UBS.

Working for EG Group is Bank of America.

DataRoom first revealed in April last year that the pair were in talks about Ampol acquiring the business, and 18 months later, a deal has finally come to fruition, with EG taking $800m cash, sourced by Ampol with debt, and $250m of Ampol shares as payment.

Sources say EG Group has been difficult to negotiate with and had high price expectations.

However, conditions have been worsening for EG Group.

The Australian’s sister publication, The Times, reported in December it was weighing a £13bn listing in the US.

The latest deal is consistent with EG’s move to shed non-core assets, and EG announced this week it had agreed to sell its Italian business to a consortium for €225m as it moved to strengthen its balance sheet.

This transaction will help the group, which operates in Britain, Europe and the US, pay down some of its $US5.3bn of net debt, amassed after an aggressive acquisition spree over five years that took its global portfolio to more than 6000 sites.

EG Group’s pre-tax profits fell from $US1.4bn to $US10m last year, The Times reported in June.

The dilemma for Ampol has been that with electric vehicles on the way, it needs to diversify earnings away from fuel sales.

In the past it has weighed strengthening its presence in retail, but now it appears it is doubling down on its core business, defying the investor push in some circles away from companies linked to fossil fuels due to concerns around the impact on the environment.

What deterred Ampol last year, say sources, was that EG had severely under-invested in the business.

Complicating matters for Ampol is that it will probably need to sell some service stations to appease the competition regulator.

DataRoom reported in 2021 that EG Group was considering an initial public offering on the ASX to reduce debt.

Then, Ampol was believed to be prepared to take a look at the business, but observers believed it would only pay an opportunistic price.

EG Group’s Australian assets that Ampol is buying are the portfolio of about 500 fuel convenience sites it bought from Woolworths in 2018 for what was considered an aggressive price of $1.7bn.

Ampol at the time was an underbidder.

Founded in 2001 by brothers Mohsin and Zuber Issa, EG Group itself submitted a $3.9bn bid for the Ampol convenience retail business early in 2020, but that was rejected.

The deal comes after Ampol purchased New Zealand fuel retailer Z Energy for close to $2bn in 2021.

Ampol said to in an announcement to the market on Thursday night that the deal had between $65m and $80m of cost-related synergies delivered in the second year of ownership.

It would increase its earnings skew towards retail-driven sources and take its Australian footprint to 1100 sites.

The deal implies a price of 5.8 times earnings before interest, tax, depreciation and amortisation factoring in debt.