Shares of Caltex Australia Limited (ASX: CTX) fell heavily on Monday following the $4.73 billion sale of its shares by US oil major Chevron. The stock plunged 10.11% to $34.05, representing a loss of $3.83 per security.
So What: Chevron's decision perhaps shouldn't have come as such a surprise. While investors weren't necessarily expecting it to happen so abruptly after the market's close on Friday, there has been plenty of speculation that Chevron would sell its stake in Caltex Australia in recent months.
As highlighted by the Fairfax press, speculation surrounding Chevron increased after Royal Dutch Shell sold its stake in Woodside Petroleum Limited (ASX: WPL) last year. More recently, Chevron stated that it planned to sell an additional US$5 billion ($6.4 billion) of assets (giving it a target of US$15 billion in asset sale proceeds by 2017), largely so that it could redirect its capital towards exploration and production which typically generates higher margins for the group.
After having closed at $37.88 on Friday, it was reported that Chevron would sell its 50% stake in the business, which it had held for roughly 40 years. Fairfax reported that institutional investors paid $35.00 per share over the weekend, representing a discount of 7.6% to its closing price. It is normal for large shareholders to sell their stake at a significant discount in order to attract the necessary interest from investors.
On a more positive note, Chevron's exit will make it easier for Caltex to distribute its enormous pool of franking credits to Australian shareholders. Given that Chevron is a US company, the return of franking credits was not available to it which saw Caltex's franking balance balloon out to an estimated $1.1 billion, according to Fairfax. As a result, investors could receive notification of a capital management initiative later in the year.
Now What: Although shareholders will certainly be feeling the pinch today, it's important to note that Caltex's shares have still risen nearly 56% over the last 12 months, drastically outpacing its benchmark, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). Caltex confirmed that it would continue to focus on growth which could see the shares recover from today's heavy drop.
