Woolworths has moved to "Plan B" for its service station business after their sale to BP collapsed, striking a 15-year supply agreement and alliance with Caltex covering fuel supply, convenience stores, wholesale food and loyalty rewards.
However, the retail giant will still pursue a float or sale of the petrol business, with plans for an IPO being finalised within the next year. Caltex has supplied fuel to Woolworths' 534 service station since 2004 under a contract worth about $150 million a year. But that has been slashed by $80 million under the new deal, with Caltex - which faced losing the entire contract if the BP sale had gone ahead - also making a one-off payment of about $50 million to Woolworths.
Woolworths chief exec Brad Banducci said the deal delivered a “material improvement” in trading terms, which would “put our fuel business on a much more competitive footing”. A new alliance will see 125 Caltex sites added to the existing network of 638 service stations where Woolworths customers can redeem their 4¢-a-litre fuel discounts and earn Woolworths Rewards points. 'This is a good deal' "It is a Plan B," Mr Banducci said of the Caltex deal last week.
"We remain disappointed by the announcements and the decision by the ACCC, but that is behind us and we needed to move forward. I think this is a good deal." Woolworths will supply food to more than 700 existing Caltex convenience sites under the agreement, and the companies will roll out a convenience offering under Woolworth's Metro banner to up to 250 Caltex sites over the next six years, with 50 sites planned over the next two years.
The deal comes just weeks after British oil major BP opted not to continue with its $1.8 billion purchase of Woolworths' 543 fuel and convenience stores, which it had agreed to buy in 2016, but had been held up by the competition watchdog. Mr Banducci said Woolworths was still gearing up eventually to sell the fuel business through a stockmarket float, and had expanded its management team to prepare the petrol arm to operate as a standalone business.
James Goth, currently Woolworths' director of corporate development, has been appointed chief executive of the business. IPO plans should be fleshed out within the next six to 12 months, Mr Banducci said, but the company is also still open to a trade sale.
“We think the capital we would release from this, we could put to better uses as we focus our business,” he said. Deutsche Bank analyst Michael Simotas said the new deal was at "least as good and maybe even better" than the BP sale - which included a continued Woolworths' grocery offering - becasue it provided similar access to sites, broader loyalty acceptance, and would lead to a higher sale price for its own fuel stations.
Caltex said the new fuel supply agreement was "stapled" to the Woolworths’ sites, regardless of their ultimate ownership, providing it with certainty of supply. The fuel giant, which stood to loose the entirety of its $150 million contract with Woolworths if the BP sale had gone ahead, said it would instead lose about $80 million in operating earnings under the new contract terms.