Woolworths' plans to pay down debt, refurbish supermarkets and expand its convenience store network will hinge on a decision this week by the competition watchdog on the $1.8 billion sale of Woolworths fuel stations to BP.
The Australian Competition and Consumer Commission is due to decide by Thursday whether to approve or block the deal, which is due to be completed in January 2018, or whether to release a statement of issues.
Analysts believe there is a 50 per cent chance the deal will be blocked. Even if it is approved, BP may be forced to sell as many as 90 outlets to appease the ACCC, changing the economics of the deal.
The acquisition will increase BP's share of the wholesale fuel market from around 18 per cent to 30 per cent and increase the number of BP-supplied sites by at least 527 to more than 1930, similar to Caltex, which has about 1900 sites, and larger than Shell (980) and Coles Express (692). BP's share of company-owned and operated sites will rise by 5 per cent to 12 per cent.
"I think there will be issues," Credit Suisse analyst Grant Saligari said on Monday. "Whether they're issues that stop it in its tracks or issues that could be dealt with some way we'll have to wait and see.
"Look at [Caltex's acquisition of Milemaker Petroleum] – there were issues of potential concern raised in that transaction and it eventually got through. However, this is a bigger deal."
Woolworths plans to use the $1.78 billion proceeds from the sale to reduce debt and fund much-needed supermarket refurbishments.
It is understood that if the deal is approved conditional on the sale of selected sites, Woolworths will receive payment in full and BP will take on the risk of divesting sites.
However, Woolworths declined to comment on Monday on the nature of the agreement, details of which have not been released.
Sources said they were confident BP could address the ACCC's concerns and the overall deal would proceed.
In partnership with BP, Woolworths also plans to jointly develop a new Metro at BP convenience store offering, drawing on Woolworths' Metro small-store format and BP's convenience store partnerships with Marks & Spencer in the United Kingdom and Rewe in Germany.
Under the deal, BP plans to fund the roll-out of at least 200 Metro at BP stores. If the ACCC forces BP to divest a larger number of stores it may crimp convenience store expansion plans.
BP will become a cornerstone partner in Woolworths' customer loyalty program and the two plan to jointly fund a 4¢-a litre-fuel discount offer at 527 Woolworths sites as well as additional BP outlets.
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