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Woolworths Group Ltd (ASX:WOW) sells Petrol business for $1.725 billion

After the market had shut on Friday, Woolworths Group Ltd (ASX: WOW) announced that it is selling its Petrol business for $1.725 billion to EG Group.

The 540 Woolworths-owned fuel convenience sites will be transferred to EG Group, which operates around 4,700 sites across Europe and North America, employing more than 28,000 people.

As part of the deal the two businesses have entered into a 15-year commercial alliance covering fuel discount redemption, loyalty and wholesale product supply.

What this means in practice is that the four cent per litre fuel discount will continue across the network, customers will continue to earn Woolworths Rewards points and a new wholesale food agreement will commence.

Woolworths CEO Brad Banducci said “This transaction is a positive for our customers, our team and our shareholders. The agreement will continue to strengthen the opportunities our customers have for greater value when shopping with us, with the benefits of the Woolworths Rewards program and the fuel discount offer set to continue.”

The existing Woolworths Petrol management and operations teams will transfer to EG Group after the sale is completed.

However, the transaction is subject to Foreign Investment Review Board (FIRB) approval before it can be finalised. If everything goes to plan, completion is expected in early 2019.

What will Woolworths do with the money?

After the deal is done, Woolworths said it will consider a range of options for the proceeds, including capital management initiatives.

However, for now, nothing is decided and further details will be provided in due course.

Foolish takeaway

This deal is slightly less than the $1.785 billion that Woolworths had originally agreed with BP, but it’s still a large amount of capital.

Woolworths is a much less complicated business without the ill-fated Masters and now its petrol stations. However, in my opinion the supermarket business, whilst defensive, has slow-growth prospects at best. I don’t think Woolworths is a buy at over 22x FY19’s estimated earnings.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.