The Caltex Australia Limited (ASX: CTX) share price is trading lower on Monday.
At the time of writing the fuel retailer's shares are down 0.3% to $34.08.
Why is the Caltex share price trading lower?
This morning Caltex announced that energy giant Chevron Corporation has provided it with a termination notice in relation to its current licence agreement for the Caltex brand in Australia.
According to the release, after 18 months of discussions between the two parties, they have been unable to find an agreement.
Caltex's licence agreement provides a three-year transition period, consisting of a six-month notice period and 30-month work out period.
It also has continued exclusive use of the Caltex brand for the notice period and first 18 months of the work out period.
What now?
Caltex will now proceed to implement existing plans to transition to the company-owned Ampol brand following a detailed brand strategy review.
Management advised that it will begin transition to Ampol on expiry of the six-month termination notice period. After which, it intends to complete the transition across the full retail network within the next three years.
Managing Director and CEO, Julian Segal, appears confident in the Ampol brand and believes it better reflects the organisation's proud Australian history.
He said: "Ampol is an iconic brand in Australia and reflects our deep Australian heritage and expertise. Our market research confirms that Ampol continues to be regarded as a high-quality and trusted brand by Australian consumers and resonates across our key customer segments."
"The transition to Ampol also supports our evolution into a growing regional fuels and convenience business and will allow us to invest and build equity in a company-owned brand as we continue the rollout of our retail strategy. This includes capturing benefits from cost synergies of rebranding during the rollout."
What will the financial impact be?
The transition to the Ampol brand will involve some additional marketing operating costs.
Whilst it will be undertaken in a capital disciplined way, it will still come at a cost.
Management estimates the indicative capital cost of approximately $165 million over a three-year period. Though, this estimate has the potential to be reduced by taking advantage of existing planned network investment.
In addition to this, management notes that the removal of annual trademark licence fees of between $18 million and $20 million will also partially offset the transition costs.
