Caltex says no to EG Group, but is still in play

Caltex Australia EG Group Euro garages Alimentation Couche-Tarde ASX
Caltex Australia's board believes the EG proposal undervalues the company and does not represent compelling value for its shareholders.

Caltex Australia (ASX: CTX) has finally decided not to accept a $3.9 billion cash plus shares takeover offer from British-based EG Group but it has still not ruled out pursuing a sale with the group.

The ASX-listed fuel and convenience retailer is the takeover subject of two groups, with the first unsolicited cash takeover offer coming from Canadian giant Alimentation Couche-Tarde last November.

Although rejecting EG’s bid, Caltex said it was open to continuing talks.

Caltex said EG bid was too low

Caltex said EG’s bid “undervalues” the company and did not represent “compelling” value for shareholders.

However, Caltex also said it was in shareholders’ interests to “engage further” with EG about a potential acquisition.

“The Caltex board has carefully considered the EG proposal, including taking into account the associated risk, costs and complexities,” it said.

“The board has concluded that the EG proposal undervalues the company.”

Caltex took a similar approach at the end of last year when it played hard ball with Couche-Tard which eventually led to the Quebec-based retailer substantially increasing its cash offer to $8.8 billion.

Couche-Tard is carrying out non-exclusive due diligence on Caltex and has not ruled out making a better offer for the company.

Couche-Tard is controlled by its billionaire co-founder Alain Bouchard.

No guarantee of a higher offer

“There is no certainty that the discussions between Caltex and EG will result in EG improving its proposal or in EG making a binding proposal,” Caltex said.

EG, which is short for Euro Garages, in February offered $3.9 billion in cash for Caltex’s convenience store business and separate shares in a new, listed infrastructure and refinery company to be called Ampol made up of Caltex’s remaining assets.

Interim CEO mulling over the bids

Matthew Halliday is the interim chief executive officer at Caltex as the company continues to be at the centre of a bidding war.

The EG bid was also contingent on EG negotiating a fuel supply agreement with the newly-listed entity for Caltex’s service stations and the Woolworths fuel outlets it already owns, making it more complex.

EG is controlled by British billionaire brothers Mohsin and Zuber Issa and is already a player in the Australian market after it spent $1.7 billion in 2018 buying Woolworths’ 540 petrol stations.

Its first unsolicited $34.50-a-share offer was rejected by Caltex, which said it “undervalued” the company.

Most analysts seem to think that Couche-Tard remains in the box seat to eventually take over Caltex, although the rebuttal of the EG bid makes it harder to extract extra cash.

Caltex last week revealed that it had suffered from an underlying weakness in national retail fuel and refining margins had contributed to a 38% fall in the group’s full-year profit.