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Woolworths Pursues Servo IPO After New Caltex Deal

Woolworths has today signed a 15-year wholesale fuel supply deal and ‘strategic alliance’ with Caltex, as the retail conglomerate looks to either an IPO, or separate sale for its service station business.

Early this week, Woolworths boss, Brad Banducci, revealed the group is interested in floating its service station business this financial year, with UBS and Morgan Stanley reportedly brought in to assist.

The news follows growing speculation Woolworths is banking on service station sale proceeds to grow its retail portfolio, including lifting embattled department store Big W. The discount retailer has recently post a turnaround, despite mounting pressure from Kmart.

The deal will see Caltex making a one-off payment of $50 million to Woolworths, coupled with an estimated pre-tax benefit of $80 million a year for Woolies.

As previous reported, last week BP withdrew its $1.8 billion acquisition of Woolworths’ service station business, following the ACCC’s rejection of the deal last year.

The new 15-year supply agreement will protect Caltex from any sales losses, and courtesy of improved terms will save Woolworths around $80 million per year.

Whilst the ACCC rejected BP/Woolworths’ proposal – citing reduced fuel price competition – consensus is, the regulator will green-light Woolworths/Caltex’s deal.

The new agreement sees Woolworths supply food to around 250 joint venture sites with Caltex – similar to BP’s strategy of establishing convenience stores alongside a major retailer.

Now, 125 Caltex sites will be added to Woolworths’ 638 network of petrol stations.

The long-term supply deal will also see Woolworths provide food to over 700 existing Caltex convenience stores.

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