AFR:
BP's $1.78 billion acquisition of Woolworths' petrol business is anti-competitive and is unlikely to be approved by the competition regulator in the first instance, according to investment bank Credit Suisse.
The BP/Woolworths deal is "bad for the consumer" and would likely push up retail fuel margins, Credit Suisse said in a report this week.
Credit Suisse analysts compared Caltex's failed $300 million bid for Mobil's 302 fuel sites in 2009 with BP's plans to acquire Woolworths' 527 sites for $1.78 billion and came to the conclusion that the Australian Competition and Consumer Commission would likely block the bid "at first."
"BP is a premium pricer, Woolworths is a discounter. It is hard, therefore, to see how this transaction would not put upward pressure on retail margins," the analysts said.
"We find it hard to reach any conclusion other than that a BP/Woolworths deal would be detrimental to competition in this sector."
BP may need to divest more than 90 of some 1927 sites (4.6 per cent) to gain ACCC clearance, changing the dynamics of the deal.
Even the disposal of 90 sites might not alleviate the impact of the deal on wholesale prices, Credit Suisse said, noting that BP would wholesale supply 30 cent of proposed sites or 39 per cent of volumes.
"We still ultimately see it as more likely than not the deal proceeds," the analysts said.
"It is not impossible it fails, though, and we must consider the impact on BP's economics that a higher level of site divestments might have on a deal we already think they are paying over for.
"They have paid a huge multiple for the business, clearly in the view that they can extract considerably more earnings from the sites," the report said.Credit Suisse is an adviser to Caltex, which made an unsucccessful offer for the Woolworths business.
The ACCC launched a review of the BP/Woolworths deal earlier this month, even though BP and Woolworths are yet to lodge their submissions.
BP is expected to argue that the Australian retail fuel market is highly competitive and the level of competition would not change if it acquired Woolworths' fuel business, which turns over $4.6 billion a year.
The deal is not expected to be completed until January 2018, underlining the complexity of the acquisition and the lengthy competition approval process.
The ACCC blocked Caltex's acquisition of 302 Mobil fuel sites in December 2009 after a six month investigation, saying it was likely to substantially lessen competition in wholesale and retail fuel markets.[
And the present Commissioner is 1000% more aggressive than any of his predecessors]
BP already operates about 350 company-owned retail sites, or about 5 per cent of the market, and supplies fuel to another 1000 sites which are owned independently and branded as BP.
Post the Woolworths acquisition, BP would have about 1927 sites, making it the same size as Woolworths current petrol partner Caltex (1900) and bigger than Shell (980) and Coles Express (692).
However,
Credit Suisse estimates that BP's share of the retail market by volume will be 39 per cent, compared with Woolworths/Caltex share of 24 per cent.Under the proposed deal, BP and Woolworths would jointly fund the existing 4’ a litre fuel discount for Woolworths' shoppers for at least 10 years. BP has also promised to expand the discount to additional BP sites and extend Woolworths' customer loyalty program.
Under a long term strategic partnership with Woolworths, BP plans to launch "Metro at BP" convenience stores in 200 BP fuel outlets, selling ready-to-eat and take-home meals, similar to its partnerships with Marks & Spencer in the United Kingdom and REWE in Germany.
BP is being advised by Corrs Chambers Westgarth and Norton Rose, while Woolworths is being advised by Clayton Utz.
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