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Caltex rebuffs $8.6bn bid from Canadian suitor

Lex Hall with AAP  |  03 Dec 2019Text size  Decrease  Increase  |  
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Caltex Australia says the $8.6 billion unsolicited takeover offer from Canadian convenience store operator Alimentation Couche-Tard undervalues the company.

The fuel importer and retailer says it has released non-public information to ACT, which has the opportunity to return with a revised offer.

Caltex (ASX: CTX) says the bid as it stands does not represent compelling shareholder value considering factors including a prospective increase in earnings, international growth, and the proposed spin-off of up to 49 per cent of 250 retail sites.

"Caltex has a well-developed strategy, privileged assets, strong leadership and compelling growth opportunities that the board believes will deliver attractive value for its shareholders over time," chairman Steven Gregg said.

"The Caltex board is focused on maximising shareholder value and will carefully consider any proposal that is consistent with this objective."

Last week's $34.50 per share cash offer is the second Caltex has rejected as inadequate. It already turned away an 11 October bid of $32 per share.

Morningstar equity analyst Mark Taylor last week predicted Caltex would baulk at the offer.

“This is particularly so, with the firm in the middle of a value-recognition exercise via a proposed property trust IPO of up to 49 per cent interest in 250 core Caltex freehold sites,” Taylor says.

He has retained his fair value estimate of $33.50, which means the company currently screens as fairly valued.

Caltex shares dropped 46 cents, or 1.3 per cent, in early trade to $34.30.

ACT chief executive Brian Hannasch has said Couche-Tard, which operates over 16,000 convenience stores in North America and Europe mostly under the Circle K brand, had been looking for an opportunity to enter the Asia-Pacific region for several years.

Nonetheless, Caltex warned shareholders there is no certainty that ACT will return again with a revised proposal.

Taylor’s fair value estimate equates to a 2023 EV/EBITDA of 7.3, P/E of 15.9, and dividend yield of 3.5 per cent.

He assumes a five-year group pre-tax earnings capital growth rate of 6 per cent to $1.5 billion by 2023. The CAGR looks good in light of the 2018 dip in profit.

“We think the market has been unfairly pricing for a modest 2.7 per cent five-year EBITDA CAGR to $1.2 billion by 2023 – little real growth – and that from a below-trend start battered by historically low refiner margins and intense retail competition,” Taylor says.

“We expect Caltex’s infrastructure advantaged business model to achieve considerably better than that. ACT clearly recognises this too and has made its move while the making is good.

“The underlying property puts somewhat of a floor under Caltex’s share price. And the near $1.0 billion in franking credits are worth more to Australian shareholders than a foreign raider.”

. Lex Hall is content editor with Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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