Private equity sought Caltex tie-up with Peregrine

Caltex’s infrastructure assets are likely to attract all the major Australian investors in the space

A private equity firm believed to be Brookfield was understood to be working on a plan to bring together Peregrine and Caltex Australia before the latter became subject to a $8.6bn takeover bid by Couche-Tard.

However, the intentions were believed to have been thwarted when the South Australian-based Peregrine, a family-owned company that operates the On the Run service stations and convenience stores, was not an eager seller.

RBC was believed to be offering advice to the company.

It is understood that the private equity firm was planning a deal in the past year and was hoping to bid about $30 a share for Caltex, which on Friday saw its shares close at $27.85.

Brookfield did not comment.

Other private equity firms, including The Carlyle Group and probably Kohlberg Kravis Roberts and Blackstone, have been known to be circling the company in the past 18 months, with former Caltex chief financial officer Simon Hepworth involved in plans to privatise the company.

The fact that Caltex has been of interest as a takeover target to buyout funds has been widely discussed around the market.

However, now the expectation is that Couche-Tard would secure the operation, but only if it sweetens its existing $34.50-a-share cash offer by between 50c and $1, with the board yet to recommend the bid.

There was an earlier offer on October 11 of $32 a share.

Couche-Tard has been working with Goldman Sachs for about a year, plotting to acquire the Caltex retail business without the infrastructure assets.

Finding a buyer for the infrastructure was not thought to be straightforward, and now the Canadian-based convenience store business hopes to buy the entire Caltex operation and sell down the infrastructure later.

The Caltex wholesale operation, which includes its Lytton refinery in Brisbane and Kurnell fuel importation and blending terminal, accounts for about half the company’s earnings.

Any buyer would probably need to pay billions of dollars to secure the operations.

The petrol retailing business operates across 880 sites and is estimated by analysts to be worth about $2bn, while the remaining value sits in the portfolio of 476 properties under its ownership.

The retailing operation has always been core to Caltex’s strategy and it was not expected to ever sell only that part of the business.

Caltex’s infrastructure assets are likely to attract all the major Australian investors in the space, including groups such as Queensland Investment Corporation, GIP and IFM, AMP Capital and UniSuper.

Couche-Tard has widely talked up the merits of its takeover offer in a scheme-of-arrangement structure, saying that $850m worth of franking credits can be unlocked with the deal, which would add an additional $3-$3.50 a share worth of value to the current bid.

While Caltex itself can also return the value to shareholders, some say it would probably happen over a period of time.

The argument for why Caltex should not accept Couche-Tard’s proposal is that it could break up the company itself and reap the benefits, rather than see its Canadian rival make a windfall.

Couche-Tard has been scanning the Australian market for some time with respect to opportunities and was one of the bidders for the Woolworths petrol station portfolio that sold to the EG Group last year for $1.725bn.

The company has 15,000 stores across Canada, Europe, the US, Europe, Mexico and through Japan, China and Indonesia with brands including Circle K, On the Run, and also under the affiliated brands 7-jours, Dairy Mart, Daisy Mart and Winks.

The takeover developments come after Caltex announced plans on Monday to embark on a $1bn property float made up of a half stake in 250 of its retail sites.

Some believe the property float would make an acquisition of the business easier for Couche-Tard, as it would then require a smaller cheque.

Working for Caltex is UBS and Grant Samuel.