Shareholders unhappy about Ampol’s $NZ2 billion buyout proposal for Z Energy may not need to be too concerned about the plan, with talk in the market another suitor remains in the mix.
It is understood that also looking at Z Energy is a major fuel company. The list of prospective buyers is said to include Chevron, Vitol, Viva Energy, BP or Shell.
Whether the party from that list comes forward with a rival offer is yet to be seen, with some sceptical after Z Energy granted Ampol four weeks’ exclusive due diligence.
But that other suitor is also said to be interested in buying Ampol’s Gull service stations in New Zealand should Ampol succeed in acquiring Z Energy transpire, and it doesn’t win or enter a contest for the company as a whole.
Z Energy operates 133 service station sites in New Zealand with the Caltex brand and 197 carrying the brand of Z Energy. Ampol owns 106 Gull sites across the Tasman.
It has been accepted by both Ampol and Z Energy that to appease the New Zealand Commerce Commission, Ampol’s Gull chain will likely need to be offloaded should they agree on a transaction.
Shares in Ampol closed down 4.76 per cent on Monday to $26.22 after the group announced it had launched its $NZ2bn buyout proposal, disappointing those hoping for a capital return at about $29 per share.
Investors in Ampol on Monday were also said to be unhappy about the price being offered for the business and the level of synergies, questioning why the company was trying to acquire Z Energy when its strategy was to focus on more environmentally friendly energy and transport.
Shares in the dual-listed Z Energy shares closed 14.53 per cent higher to $3.31.
Ampol is working with Macquarie Group and law firm Bell Gully for its proposal, which was well flagged by DataRoom and which followed three earlier offers at $3.35, $3.50 and $3.60 per share. Z Energy is working with Goldman Sachs and Chapman Tripp.
The New Zealand fuel retailer has not recommended the deal, still paving the way for another party to come forward.
The Ampol offer may include scrip and a secondary New Zealand listing, although this option is not said to be popular with Z Energy investors, and Ampol would raise $600m to fund the transaction or pay the scrip to shareholders.
The valuation estimates for Ampol’s New Zealand Gull business, which generates about $NZ50m of earnings before interest, tax, depreciation and amortisation, are up to $NZ600m, after it was purchased for $NZ340m in 2017.
The NZ Commerce Commission is expected to be picky when it comes to what buyer secures the service stations, hoping to ensure that healthy competition remains in the fuel retailing industry by ensuring another strong performing strategic player is a buyer.
A challenge for Ampol when it comes to preventing other suitors gaining a grip on Z Energy are Commerce Commission rules that prevent it from buying a blocking stake to stifle competition for the business.
A similar hard line stance has been taken by the New Zealand competition watchdog with previous attempts across the Tasman by Australian groups to gain control of competitors. Woolworths’ bid for The Warehouse and Suncorp’s bid for Tower insurance were both blocked.
Ampol’s offer is a 22 per cent premium to Z Energy‘s last close on August 12, the day before it received the proposal.
The upside for a Z Energy buyer is the recent closure of New Zealand’s only oil refinery at Marsden Point in Northland, which can create an earnings stream for Ampol by selling fuel into New Zealand for Z Energy’s fuel retail network.
Ampol owns a Singapore trading hub, sourcing crude oil and refined products. Some investors believe Ampol’s management can improve Z Energy’s performance.
Ampol, an Australian-listed retail fuels and distribution business that was previously called Caltex Australia, reported a $325.5m half year net profit on Monday, rebounding from a loss in the previous corresponding half.
Fuel volumes have been 35 to 40 per cent lower than from before the global Covid-19 pandemic and Ampol had also suffered from weaker shop sales.
Some analysts believe Z Energy has been underpriced and misunderstood by the equity market and estimate that Ampol could achieve supply chain synergies worth at least $NZ70m per annum for a transaction.
The refinery closure removes earnings volatility for Z Energy without the oil refining margins having an impact and releases working capital, creating an opportunity in regional fuel product sources.
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