The sale of Woolworths' fuel business and the simultaneous formation of a strategic alliance, would be good for the Australian grocery chain, Craigs Investment Partners broker Peter McIntyre said yesterday.
Woolworths sold its fuel business to BP late last year for $A1.8billion ($NZ1.87billion), allowing it to expand its loyalty programme and push forward with plans to roll out up to 200 new convenience stores.
The Australian grocery operator owns Progressive Enterprises in New Zealand and the operator of Countdown, as well as the franchisor of Super Value and Fresh Choice supermarkets, which represent a further 62 stores.
Mr McIntyre said the sale of the non-core fuel business was positive, as it provided upfront cash to enable the group to execute on its turnaround.
The accompanying 10-year agreement enabled Woolworths to offer fuel discounts to customers over a broader range of sites, adding more value to its important loyalty programme. Mr McIntyre said it potentially enabled Woolworths to participate in earnings upside from co-located convenience stores.
He said the sale price was not as high as it appeared on a headline basis, given it included an upfront payment for Woolworths' share of the petrol discounts. There would be some stranded overheads, he said.
The transaction was estimated to dilute earnings by about 4%, but would allow for important balance sheet relief.
This would provide the group with the funds to finance up to 400 supermarket refurbishments.
The transaction remained subject to the Australian Competition and Consumer Commission and the Foreign Investment Review Board.
It was not expected to occur for 12 months.
''While we see little risk with the Foreign Investment board, the ACCC is likely to look at the proposed transaction on a site-by-site basis and we expect some divestments will be required,'' Mr McIntyre said.
''There is a reasonable degree of geographic overlap between Woolworths and BP sites.''
Mr McIntyre said the complexity was reflected in Woolworths' statement that a settlement was expected to occur no earlier than January 2, 2018.
