Sharemarket rout may scupper Caltex bid: Credit Suisse

Analysts have questioned whether a buyer would proceed with a bid at a 40 per cent premium to Caltex’s share price.

Kedah Malaysia - June 9 2017: Caltex gas station blue sky background during sunset. Caltex is a petroleum brand name of Chevron Corporation used in more than 60 countries.

Caltex’s plummeting share price amid broader market turmoil will likely scupper the chances of a takeover proceeding, Credit Suisse says.

Caltex fell a further 9.6 per cent on Friday morning to $22.55, marking a 36 per cent discount on Couche-Tard’s $35.25 a share bid.

The broker questioned whether a buyer like Couche-Tard would proceed with a bid at a 40 per cent premium to Caltex’s share price and whether funding would be available given deteriorating market conditions.

“That is too many uncertainties, in our view,” Credit Suisse said.

Couche-Tard is midway through due diligence on Caltex and is expected to complete the process later this month. However, there is now significant uncertainty over its appetite to proceed with its $8.8bn bid given the changed market dynamics.

Caltex shares also tumbled 9 per cent on Thursday over concern a fall in global travel would further cut demand for the company’s jet fuel supplies amid broader market turmoil and a further 4 per cent cut in the price of oil.

The Sydney company on Thursday reiterated its forecast that demand for jet fuel would fall between 5-10 per cent due to cancelled flights, but also warned it could take a bigger hit in the coming weeks after customers including Qantas cut capacity and services this week.

President Trump’s 30-day travel ban on flights between the US and Europe extended Caltex’s losses during Thursday trading on fears of an even deeper hit to travel and oil demand.

Adding to the gloom, Caltex’s February refiner margin fell to $US4.14 a barrel from $US5.78 a barrel in January which was blamed on global demand and the transition to new shipping rules.

Couche-Tard is midway through due diligence on Caltex and is expected to complete the process later this month. However, there is now significant uncertainty over its appetite to proceed with a bid at $35.25 a share given the changed market dynamics.

Still, RBC analyst Ben Wilson said the divergence in Caltex’s share price compared with Couche-Tard’s $34.74 ex-dividend bid is overdone “given the likelihood, in our view, of the deal proceeding, with Caltex’s business model, in our view, having relative strength in a global slowdown.”

“We think Caltex should be viewed as relatively insulated from the oil and broader market sell-off.”

RBC also pointed to Couche-Tard’s appetite to strike deals in tough economic conditions, noting its $2bn attempt to buy US store operator Casey’s in 2010.

“ACT’s target of doubling EBITDA over a five-year period, driven by a 50/50 mix of organic/M&A opportunities remains intact,” Mr Wilson said.

Caltex has rejected two bids from Couche-Tard comprising an initial proposal of $32 a share in October and a bump to $34.50 in late November.

The Canadian convenience store giant then lobbed a ‘best and final price’ of $35.25 a share on February 13 in a deal worth $8.8bn, but left the door open to a higher offer if rivals emerged.

A rival bid by the UK’s EG Group was rebuffed by Caltex although it offered an olive branch by saying it wanted to continue discussions about a sale.