Z shares at record as Caltex deal seen reducing competition

Friday 29th April 2016

Z Energy shares jumped to a record after the Commerce Commission approved its bid to buy rival Caltex and Challenge! petrol station chains, saying price coordination at some stations wasn't enough to turn it down but that regions where Gull stations operate are more competitive.

The competition watchdog's delayed and 3:1 majority decision on the $785 million deal gives Z about 49 percent of the retail transport fuels market and lets NZX-listed Z buy the 'downstream' assets of American oil giant Chevron, which is exiting all but its exploration activities in New Zealand. Z's clearance includes an undertaking to sell 19 sites and one truck-stop.

The shares climbed 11 percent to $7.90, valuing the company at $3.2 billion.

Matt Goodson, managing director at Salt Funds Management, said the deal was good for Z but bad for consumers.

"It certainly wasn't priced as 100 percent certain to happen, there's obviously been a move, and it also appears the Caltex NZ business is travelling a little better than the previous numbers," Goodson said. "It's certainly a major win for some very capable management at Z Energy, and a significant loss for the New Zealand consumer given the very sharp movement in petrol margins in recent years and the fact that massive vertical integration remains in place."

Commission chair Mark Berry told a briefing in Auckland that most of the panel felt Caltex had "simply been a price follower" meaning its exit wouldn't materially change the dynamics of the market in respect of price coordination, but accepted there was coordination happening in some instances and in some local markets.

"The pattern of coordination is perhaps more evident outside the areas where Gull is present," Berry said. "What we see are different is pricing patterns through the country and the dynamic impact of Gull is clearly to be seen on the market. Outside of that, we get greater parity of prices."

Berry emphasised the commission had not seen any evidence of price collusion from petrol chains. The majority view held that it wasn't the commission's role to determine all the impacts of price coordination.

Berry said the majority view was the prospect of another bid for the Chevron assets was remote.

Z, which was formed from the retail and other downstream assets of Royal Dutch Shell's New Zealand operation, must close retail sites in the following locations: Northland (3), Auckland (1), Waikato (3), Bay of Plenty (1), Wellington (1), top of the South Island (2), Christchurch (3), Canterbury outside Christchurch (4), and one in Otago, with a truck stop in Kawerau also to be sold. Berry said he couldn't disclose exactly which petrol stations for reasons of confidentiality.

Z currently owns some 200 service stations while Caltex has 150 sites. Z's chief executive Mike Bennetts welcomed the decision, which took 10 months, saying "as a local company we believe buying the business of a global company is good for New Zealand and it’s now up to us to prove it."

BusinessDesk.co.nz

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