Ampol Ltd (ASX: ALD) shares are up by 9.45% to $29.64 after the company announced a $1.1 billion acquisition last night.
The ASX 200 energy share went into a trading halt yesterday, which froze the Ampol share price at $27.08.
It seems investors are excited about the deal, given the trajectory of Ampol shares at the time of writing today.
Let's check out the details of the acquisition.
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Ampol shares roar on acquisition of EG Australia
Ampol announced it has agreed to buy EG Australia for $1.1 billion.
The acquisition would add about 500 company-owned and operated (COCO) service stations to Ampol's network.
EG has operated in Australia since 2019 after it bought the 500 service stations from Woolworths Group Ltd (ASX: WOW).
Ampol supplies the fuel to EG service stations, which are all branded EG Ampol.
The deal follows extensive negotiations and due diligence.
Ampol said the acquisition would accelerate its retail growth strategy through an expanded Ampol Foodary brand and a value-oriented U-GO branded offer at scale.
Ampol expects the full integration to take about two years after the deal's completion, which is anticipated by the middle of 2026.
The company said the deal was compelling for its post-synergy multiple of 5.8x and targeted synergies of $65 million to $80 million.
Ampol said it expected high single-digit pro forma adjusted earnings per share (EPS) accretion and double-digit pro forma free cash flow per share accretion after synergies.
How would the deal be funded?
Ampol proposes to fund the deal with about $800 million in cash from existing debt facilities and $250 million of Ampol shares.
Those shares would be subject to escrow arrangements. However, Ampol has the option to cash settle the equity component if preferred, dependent on its balance sheet position and in line with its Capital Allocation Framework.
Ampol said it was committed to maintaining its current Baa1 investment grade credit rating.
It anticipates returning to its target leverage range by the end of 2027.
Ampol may divest 20 sites to suit ACCC
The Australian Competition and Consumer Commission (ACCC) has to approve the deal before it can proceed.
Ampol said it would offer to sell about 20 sites from the combined networks, if required, to satisfy the ACCC's competition rules.
The company said:
This proposed number of upfront divestitures takes into account the complementary nature of our networks as well as the significant change in the competitive landscape over the last decade.
This includes the growth in independent operator sites and the significant rationalisation of Ampol's COCO network.
What did management say?
Ampol's Chair, Steven Gregg, said:
EG Australia is a logical growth opportunity for Ampol given our long-term relationship and its ability to complement our Australian Convenience Retail growth strategy.
This has been achieved whilst maintaining our commitment to financial discipline. The combined network will have greater scale and significant cost synergies that will support strong returns and earnings growth for our shareholders.
Ampol CEO and Managing Director, Matt Halliday, said the acquisition was the next major step to improve the quality of Ampol's earnings.
Halliday commented that Ampol had successfully transitioned from a largely franchise model.
He said the national rebrand to Ampol and the ongoing U-GO site conversions demonstrated the company's ability to manage change effectively and support strong returns.
Halliday commented:
The benefits of this transaction, will underpin the continued growth of our Convenience Retail business which has delivered more than 5% compound annual growth rate in EBIT over the past five years.
Once integrated, we expect the contribution from convenience retail derived earnings, across Australia and New Zealand, to increase to ~65%, while total earnings from marketing-related activities will increase to ~85%.
Ampol released an investor presentation to provide further information to shareholders.
Snapshot of Ampol shares
The Ampol share price is down 14% over the past 12 months.
According to our earnings season calendar, Ampol will release its half-year FY25 results next Monday, 18 August.
