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Woolworths seals $1.8b sale to fund grocery war

by December 28, 2016 General

Ending months of negotiations, embattled retailer Woolworths is to sell its nationwide chain of petrol stations to BP for $1.8 billion, with the British-owned oil major set to emerge as the top petrol retailer in the country.

In one fell swoop, the purchase catapults BP to the market leader, since Woolworths has an estimated 24 per cent share of the fuel market, equal to Coles. Added to its existing 15 per cent market share, this will give BP a commanding 39 per cent share of the petrol market.

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Woolies sells fuel business to BP

The $1.8 million deal includes its 527 fuel convenience sites and 16 development sites. (Video courtesy: ABC News 24)

This is well ahead of the 42 per cent controlled by Caltex with its deal to supply Woolworths outlets. The Caltex share will shrink to around 18 per cent once the link with Woolworths is severed.

Until now, Woolworths has been supplied by Caltex Australia and while Caltex was also in talks to buy the Woolworths outlets, it triggered speculation it was the underbidder by launching two acquisitions – one in Victoria and another in New Zealand – as it prepared for the loss of sales volume through the Woolworths petrol stations.

Woolworths will sell its petrol station portfolio to BP in a $1.8 billion deal that will help the retail giant fund its ... Woolworths will sell its petrol station portfolio to BP in a $1.8 billion deal that will help the retail giant fund its ongoing fight to regain market share in the grocery sector. Photo: Glen Hunt

The deal between Woolworths and BP needs the approval of the Australian Competition and Consumer Commission, which could force the divestment of some petrol stations to third parties, especially given the dominant position the deal will give the British-owned group.

Woolworths needs the cash from the sale to reduce debt as it continues to streamline its operations in a bid to revive its faltering earnings. It is exiting its Masters hardware venture which is being wound up as it shrinks back to its core supermarket and Big W retail offering.

The deal between BP and Woolworths will enable the Woolworths 4¢ a litre discount to be extended to BP outlets, the retailer said, which will lift to 80 per cent from 75 per cent the number of its outlets with service station nearby.

A core part of the deal involves the operation of convenience stores at the service stations, with BP to trial the Woolworths Metro format at its service stations prior to committing to rolling them out across 200 of its petrol stations, only a small part of its 1400 outlets across the country.

The deal with BP involves all 527 Woolworths outlets and is expected to take up to 12 months to finalise, Woolworths said.

The Woolworths fuel business has annual revenue of $4.6 billion and earned a pretax profit of $117 million last financial year.

Caltex said it supplies 3.5 billion litres of fuel oil to the Woolworths petrol stations and until the deal with BP is finalised, it will continue to supply the outlets.

Caltex said it was disappointed to have missed out on the Woolworths acquisition, although it stressed it had exercised “financial discipline” in the offer it lodged, while pointing out that volumes sold through supermarket discount schemes is declining. Coles has a similar discount scheme which it operates via Shell petrol stations.

The sale to BP is expected to take 12 months to complete, with the approval ov the Foreign Investment Review Board needed along with that of the ACCC before it can proceed. Until then, Caltex said it will continue to supply fuel to the Woolworths outlets.

As well, Caltex said it will pursue business opportunities adjacent to its existing fuel sales via its push into convenience retailing, along with product sourcing via its recently established trading arm in Singapore.

Woolworths shares surged 2.5 per cent to $24.44 on the sale with Caltex slipping 1.5 per cent to $30.15 as recent gains were eroded.