Woolworths boss to keep keen eye on Viva float

Woolworths will be watching the Viva float with interest but the retailer’s petrol plans are an entirely different proposition.

New signage at Woolworths petrol stations.Picture: MATHEW FARRELL

Woolworths boss Brad Banducci will be watching the Viva float next week with interest but in reality he has a different proposition to take to the market because he owns and operates the retail outlets whereas Viva is a fuel wholesaler.

Banducci has UBS and Morgan Stanley advising him on his sale options now the $1.8 billion BP deal is off the table and as noted last week a float is high on the list of possibilities.

The big winner from a Woolworths float of its petrol sites would be Caltex because it would get to keep its circa $125 million a year fuel supply business.

But its early days yet and the assets are fundamentally different.

The float would be of the stores with a fuel supply agreement in place.

Vitol Group, Viva’s parent company, let its service station sites to Coles and the retailer serves a role as an operator but not the owner.

In the early days of the Coles-Shell relationship, the retailer treated it like any other supplier which meant it tried to get the best price possible and more often than not Ian McLeod and John Durkan managed to do just that.

But in 2014, when Vitol took control of the old Shell retail business, life changed and the supply terms were put on a different level, which meant after arguably over-earning on fuel in the early years, Coles is now under-earning, as shown by the 30 per cent fall in its fuel earnings last half to $90m.

The Viva float is aimed to go to a bookbuild next Tuesday with trading starting on Friday week.

The size of the float will depend on demand, with an indicative price of around $2.50 to $2.65 a share, putting the value of the company atr between $4.8 billion and $5.1bn.

Vitol will end up owning something between 40 and 50 per cent of the float.

Like Caltex, Vitol has local refineries but imports most of its product.

When former Coles boss John Fletcher did the original deal with Shell he was keen not to get too much into the petrol business which explains why the retailer just leases the sites.

By contrast, the 531 Woolies sites which were in the BP deal are actually owned by Woolworths.

BP has pioneered the concept of up-market convenience stores attached to retail petrol sites with its landmark Marks & Spemcers deal in the UK.

That model is what Caltex’s Julian Segal has copied in his Foodary stores being rolled out in Australia.

That remains an option at Woolworths but Banducci has made clear he doesn’t want to be in the fuel business any more which explains why he is looking to alternate deals.