Australian-listed fuel retailer and refiner Caltex Australia Limited (ASX: CTX) had a large re-rate in November thanks to a few key announcements towards the end of the month.
Caltex shares traded in a very non-eventful manner until 25 November, where it gapped up 6.9% to over $30 and closed just under at $29.80. The following day the news was priced in further with another leap of 11.8% to $33.30 and a strong finish at $33.82. Throughout the whole month of November, the Caltex share price gained 26% – that's double the average annual return of the S&P/ASX 200 Index (INDEXASX: XJO) in just one month!
Caltex Australia announces plans for property IPO
This came as a surprise to the market when on the morning of 25 November an ASX announcement was released disclosing Caltex's plans to IPO a section of its property portfolio. The proposed IPO would float a 49% interest in 250 freehold sites that Caltex currently owns.
Caltex said it will still have the controlling interest over all sites and intends to secure long-term lease agreements over these sites from a variety of tenants. The reasoning behind this IPO stated by Caltex is "to release significant capital which will allow Caltex to explore capital management opportunities."
In other words, this means Caltex wants to issue rights to its property portfolio in order to generate capital for other expansionary projects within its operations.
Why did this announcement have such an effect on the Caltex share price?
Reading deeper into the announcements, Caltex disclosed a predictive cashflow for the IPO which always gets investors giddy. The company estimates that the property trust will receive rental receipts of approximately $80–100 million in the first year using 250 freehold sites within the core network of 500 sites. This shows investors that Caltex is dipping its toe into the water with this venture and has ample room for future expansion, should the initial venture be successful.
The managing director and CEO, Julian Segal stated:
Caltex is focussed on unlocking value in our portfolio for shareholders and the segmentation of our network following our convenience Retail network review has allowed us to consider a range of options to release capital from our high-quality property assets.
Translation: Caltex figured out that its property assets are succumbing to opportunity cost, it believes the 250 sites that have been identified can generate more income via other tenants that aren't Caltex service stations. This will help 'unlock value' from its property, which will lead to a higher return on assets due to the increased asset utilisation and rental yield.
Proposal from Alimentation Couche-Tard
In an even more surprising announcement Caltex received a non-binding offer from Alimentation Couche-Tard, a convenience store company listed on the Toronto Stock Exchange. Caltex was quick to comment that "The company's announcement about the IPO is not related to the Proposal."
The proposal from Alimentation was to acquire all shares at $34.50 cash, less dividends declared. This is huge. Another listed company was happy to value the equity of Caltex at a 14% premium to the traded price on 25 November ($29.79). The market took to this and quickly adjusted the share price to approximately $34.50 as Alimentation quoted in the agreement.
Yesterday Caltex released an announcement replying to the proposal with a statement:
Caltex today announces that the Board has concluded that the Proposal undervalues the Company and does not represent compelling value for Caltex's shareholders. However, the Caltex Board has offered to provide ATD with selected non-public information to allow ATD to formulate a revised proposal.
Foolish takeaway
Caltex has a lot of news to follow in the coming months. Investors who are willing to take on the risk of owning Caltex shares whilst a proposal is being entertained may be rewarded generously. Proposals like this don't come all that often to large household name companies. The property IPO is now challenged with a take-over proposal, which should play out in an eventful way. Whatever happens, Caltex appears to be sitting pretty defending its newly adjusted share price whilst the rest of the ASX is taking a thrashing.
