Stock Price Under Discussion: Caltex Australia Confirms Non-Binding and Indicative Acquisition Proposal from ACT

  • Nov 26, 2019 AEDT
  • Team Kalkine
Stock Price Under Discussion: Caltex Australia Confirms Non-Binding and Indicative Acquisition Proposal from ACT

On 26 November 2019 (AEST 02:16 PM), the S&P/ASX 200 Energy Sector was trading at 11,519.3, up 1.68 per cent compared to the last close and the benchmark index S&P/ASX 200 was inching upward by 0.77% to 6,783.8.

Let us discuss Caltex Australia Limited (ASX: CTX), an energy sector player listed on the Australian Stock Exchange under the ticker CTX, which caters to around 30 per cent of all transport fuel needs in the country. The stock of CTX was trading at $33.440 on ASX on 26 November 2019 (AEST 02:35 PM), up by 12.252 per cent from its previous close, following a market update by the company regarding an unsolicited, conditional, confidential, non-binding and indicative proposal from Alimentation Couche-Tard Inc. (ACT).

Non-binding and Indicative Proposal

On 26 November 2019, the company addressed recent media reports regarding a potential takeover proposal by confirming to have received the non-binding and indicative proposal from Alimentation Couche-Tard Inc. (ACT).

As per the proposal, ACT intends to acquire all the CTX shares by way of a scheme of arrangement at a cash price of $34.50 per share (indicative), which is less any dividends declared by Caltex. The proposal would allow the company to pay a special dividend or other distribution.

The Board of Caltex is considering the proposal, which is subject to due diligence, no material asset sales, divestments or similar transactions, a unanimous recommendation by the Caltex Board, approval of the ACT Board, among other conditions.

As the negotiations between the two parties are at a preliminary stage, there is no certainty regarding the execution of a transaction.

About the Company

Caltex Australia Limited is one of the leading fuel suppliers in the country, catering to the transport sector. Based in Sydney, New South Wales, the company employs a staff of approximately 6,600 people in New Zealand and Australia. CTX, which also operates as a convenience retailer, aims to become the top player in the evolving convenience retail market, in addition to supply chains (complex).

Caltex manufactures fuels such as LPG, petrol, diesel and jet fuels along with lubricants and other speciality products. The products are marketed and distributed to commercial and retail consumers and supplied via terminals, pipelines and company-owned transport fleets.

Let us go through some other recent developments of the company.

Trading Update

Recently, the company released an update on convenience retail (CR) trading performance for the 2019 full year and October Caltex Refining Margin (CRM). The update was provided after a period of heightened market variability impacting refiner margins and a recovery in domestic retail fuel margins from those experienced in the first half of 2019.

CR Update

The company is expecting to register Convenience Retail Earnings Before Interest and Tax in the range of $190 million to $210 million. This EBIT is up $20 - $40 million when compared with H1 of 2019, on the back of an improvement in fuel margin. The company, whose refocus on retail fuel resulted in market share gains through the year, is anticipating to report total CR fuel sales volume of approx. 4.8 billion litres in 2019.

Julian Segal, the MD & CEO of Caltex Australia, commented:

CRM Update

  • CRM was reported at USD 12.01 per barrel in October 2019, with October Caltex Singapore Weighted Average Margin (WAM) of US$15.61 per barrel;
  • The strong WAM conditions in the month was partly offset by increasing landed crude oil premiums and lower yield as typical in warmer months;
  • The oil premiums were higher due to the typical link between higher margins and crude premiums, in addition to short-term spikes in the international freight markets.

Meanwhile, full year 2019 sales from production guidance remains unchanged at around 5.5BL. The company is due to provide an update on the strategy execution, which includes launch of the [email protected] stores and Fuels & Infrastructure initiatives at its Investor Day.

Caltex to Undertake Property IPO

On 25 November 2019, Caltex announced plans regarding an initial public offering (IPO) of a maximum interest of 49% in 250 core Convenience Retail freehold sites.

  • The company proposes to retain a majority interest in the freehold sites, which would be placed into a property trust, and enter into a long-term lease agreement over each site.
  • It is expected that the trust would receive rental payments from the company of approximately $80 million-$100 million in the first year;
  • The transaction is expected to complete in the first half of 2020;
  • The company has appointed UBS and Grant Samuel as financial advisers, UBS as lead manager in relation to the IPO, and Herbert Smith Freehills as legal adviser.

According to Caltex Chief Financial Officer, Matt Halliday, the proposed initial public offering would release significant amount of capital while improving shareholder returns, with strengthened balance sheet and funding for growth opportunities in the future.

Caltex Rated Baa1 with Stable Outlook

On 24 October 2019, Moody’s Investors Service assigned an issuer rating of Baa1 to Caltex Australia Limited, with a stable outlook. The rating is largely driven by the company’s position as a leading transport fuels marketer and convenience store operator with its strong financial profile and history of conservative credit metrics. The stable outlook highlights that Caltex would adhere to its financial policy while keeping leverage under 2.0x.

Dividend Payout Ratio Up by 18 Per Cent during 1H 2019

On 27 August 2019, the company announced financial results for the half year period ended 30 June 2019. Few highlights from the results are as follows:

  • Dividend payout ratio of the company increased by 18 per cent to 59 per cent in 1H 2019 compared to the previous corresponding period (PCP).
  • Caltex net borrowings soared by 21 per cent to $1,264 million.
  • The company declared a dividend of 32 cps against 57 cps in the same period of 2018.
  • The company EBIT (Convenience Retail) declined by 47 per cent to $85 million.
  • Capital expenditure for 2019 has been revised down to $300 million.

To read more about the company’s outlook, click here.

CTX Stock Performance on 26 November 2019

The company has approximately 249.71 million outstanding shares and a market cap of $7.44 billion. The fifty-two weeks low and high value of the stock is at $20.520 and $33.560, respectively. The stock has generated a positive return of 12.20 per cent in the last six months and a positive return of 18.36 per cent on a year to date basis.


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