The Caltex Australia Limited (ASX: CTX) share price has plummeted more than 7% this morning, after the company announced that its proposed acquisition has been called off. Its suitor Alimentation Couche-Tard Inc has decided not to proceed with the acquisition, due to economic uncertainty around the coronavirus pandemic.
Oil price rout derails deal
Alimentation had proposed an $8.8 billion cash takeover of Caltex late last year, but the rout in oil prices threw the deal into doubt. The Canadian convenience retail giant had suggested a $35.25 a share offer, however oil price declines have seen the Caltex share price decline to $23.56.
Alimentation completed its due diligence on Caltex without any material issues. Although it is walking away right now, it may re-engage once there is sufficient clarity on the global outlook, perhaps at a lower price.
Strong strategic fit
Alimentation has advised that it sees Caltex as a strong strategic fit for its business with considerable opportunities that could be extracted through a combination of the businesses. Alimentation continues to view Caltex as an important potential component of its Asia Pacific strategy.
Alimentation was reportedly able to secure financing for the proposed deal but due to the coronavirus pandemic believes it would be prudent to re-engage when there is sufficient clarity as to the global economic outlook.
Caltex remains independent business
Caltex says it is well-positioned to navigate current market uncertainty. It has taken decisive action in the face of the coronavirus pandemic to protect assets and optimise cash flows. Fixed costs have been reviewed across the business to deliver a lower cost base and the 2020 capex target has been reduced to below $250 million by focusing only on critical business items.
Chairman Steven Gregg said, “we remain confident in the strength of Caltex as an independent business, and should we receive an approach in the future we would be willing to consider it on its merits.”
In its first quarter trading update released today, Caltex reported a 32% reduction in earnings from its fuels and infrastructure business. This was a result of unprecedented market disruptions resulting from OPEC production tensions and the impacts of coronavirus. These impacts caused disconnects across crude, product, and freight markets.
Convenience retail and reseller gasoline volumes were lower, as were jet sale volumes.
Interim CEO Matthew Halliday said, “Caltex entered the current period of COVID-19 uncertainty with a strong balance sheet and we will continue to protect our cashflows and to position ourselves to take advantage of opportunities that will arise when markets recover.”
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
Motley Fool contributor Kate O'Brien 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.