Caltex takeover may be struck at lower price
A takeover of Caltex could be struck at a lower price as bidder Couche-Tard cites the impact of market turmoil.
An $8.8bn takeover bid for Caltex could be struck at a lower price after bidder Couche-Tard said it expects a dramatic change in the value of M&A deals amid global market turmoil.
The Canadian suitor is currently midway through due diligence on the Australian fuels retailer and while still committed to buy the entire business says it will apply “rigour and discipline” to any buyout proposal.
“I think it’s very likely that the landscape for credit and M&A multiples will change dramatically, and our goal is to be ready if the right opportunities present themselves,” Couche-Tard chief executive Brian Hannasch said when asked by analysts about the deal environment.
“With regard to Caltex, specifically, we’re in the middle of our due diligence process and we’ll get comfortable by applying our usual rigour and discipline around M&A. Our first and foremost goal is to make sure that any transaction we do will deliver appropriate returns to build long-term value for all of our stakeholders.”
Couche-Tard has a $35.25 a share bid on the table but huge volatility in equity markets and the plunging oil price has seen Caltex shares plummet 44 per cent below the offer price, closing down 10.5 per cent to $19.77 on Wednesday.
Couche-Tard noted cheaper deal opportunities can arise in the market during tough economic conditions, with some of its competitors holding less financial firepower.
“If I look back over the years, I would say some of our best opportunities have come after a difficult period,” Mr Hannasch said.
“I think it’s normal to see contraction in multiples during periods of crisis and after. We’ve seen a lot of activity in recent years by consolidators, including private equity that we don’t think will have the same balance sheet flexibility going forward.
“Financing is going to be more difficult to obtain. So as always, our approach has been to maintain a clean balance sheet and be able to get through these difficult times in good condition and take advantage of opportunities that may arise.”
Despite the market rout, Couche-Tard referenced the similarities between Caltex and Norway’s SFR which it bought for $US2.8bn in 2012. It intends to buy the whole Caltex business rather than just the retail component.
“We’re currently in the middle of due diligence and won’t comment further on that process other than to say we’re committed to 100 per cent of the business,” Mr Hannasch said. “We certainly feel we can leverage the experience of when we bought SFR almost nine years ago now, which includes a very similar asset base. And then I would say due diligence has also reinforced the fact that Caltex has a very strong team with a high level of expertise around the full value chain.”
Couche-Tard has access to a $US2.5bn credit facility and said financing had yet to dry up.
“We don’t know how the situation will evolve and what impact it would potentially have on M&A. But we are monitoring the situation very closely,” Mr Hannasch said.
“We also think that once we will pass the peak of the coronavirus crisis, we’re not going to see a desirable – and a desire to accelerate the investment to restart the economy. And this in an environment where conditions are and availability are going to be favourable to strong players like us. So we’re monitoring that very closely. But we feel that we still have flexibility in this environment right now.”
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