Ampol’s hopes to buy Z Energy likely to require highly conditional sale of rival Gull

Z Energy says a takeover by Australia’s Ampol will probably require a highly conditional sale of discounter Gull, as its shares surged to the highest level since the pandemic.

The Wellington-headquartered company confirmed on Monday morning that it has been in prolonged talks with ASX-listed Ampol about a possible sale, as it confirmed it had received a non-binding bid worth $3.78 a share, valuing the company at just under $2 billion.

Z Energy shares initially surged more than 18 per cent to $3.62, but soon eased to close up 14 per cent at $3.48, as it became clear that even if a deal was done it will not be completed until well into 2022 and the company would have to cut dividends in the meantime. It was the highest price Z Energy shareholders have seen since March 2020.

Monday’s announcement saw Z Energy reveal that the offer was the fourth it had received from Ampol, starting with a $3.35 offer back at the start of June.

Chief executive Mike Bennetts, who has led Z Energy since 2010, made it clear that the board was not recommending shareholders should accept the deal, but the latest offer was sufficient to permit Ampol to conduct due diligence.

“What we’ve said is, it’s enough to grant them the opportunity to do DD [due diligence] and to revise their offer and it also gives us the chance to understand their confidence and approach to securing those regulatory approvals.”

Z will use the time to gain feedback from investors about whether they are interested in taking the money, or a possible sale involving both cash and Ampol shares, which could even be listed on the NZX.

The proposed transaction – a scheme of arrangement – would require both approval from Z’s shareholders and the High Court. Approval would also be required from both the Overseas Investment Office and Commerce Commission, with Ampol’s ownership of Gull flagged as a potential sticking point.

Ampol said if necessary it was prepared to sell Gull, however Bennetts, who led Z Energy through the takeover of Caltex in 2016, warned that the competition watchdog may effectively want approval not only over who the discounter was sold to, but also the buyer’s plans.

“We think the only way this transaction would proceed is if Gull is divested 100 per cent by Ampol and we think the Commerce Commission will have an interest in who the buyer is,” Bennetts said.

“It’s not just a matter of Ampol saying ‘we’ve sold Gull’, the Commerce Commission will want to have a say by way of some form of approval of who that buyer is.”

Not only was the Commerce Commission likely to take a dim view of Gull being snapped up by one of the other major fuel companies – BP or Mobil – it would also potentially seek assurances that Gull would be run as a challenger, Bennetts said.

“Should somebody else seek to buy that asset, how would they run it and would they perpetuate that role in the market? It’s not just who the buyer is, it’s their approach to the way the company is operated,” Bennetts said.

Ampol chief executive Matthew Halliday declined to elaborate on what the company would be prepared to do to satisfy competition concerns beyond saying it could consider a full divestment of Gull.

Shares in Sydney-headquartered Ampol dropped by more than 5 per cent on the news, but Halliday maintained that creating a transtasman player of scale made sense for investors.

“It’ll take people a little time to work through the implications of the deal. We need to get on to conducting our due diligence to confirm that we are able to proceed at the proposed price.”

Ampol’s refining operations, at Lytton in Brisbane, and its track record of delivering fuel during periods of disruption meant it could add to New Zealand’s fuel security, Halliday said.

In May, Ampol and its rival Viva Energy struck a deal with the Australian Government to continue to refine fuel in Australia for at least another six years on subsidised terms, which analysts said was likely to lead to takeover offers.

One investment banker said at the current level, the Ampol offer was “marginal” but the interest could flush out interest from Viva.

During the four-week exclusivity period, Z Energy cannot solicit offers from other parties but Bennetts said the announcement of the talks may flush out other interest. “If somebody else thinks they can make a better offer than Ampol, they can come along and knock on our door at any time.”

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