The Ampol Ltd (ASX: ALD) share price and Z Energy Ltd (ASX: ZEL) share price are up on a potential merger.
Ampol is a leader of transportation fuels. It supplies the country’s largest branded petrol and convenience network as well as refining, importing and marketing fuels and lubricants. It used to operate as Caltex Australia, but it has returned to Ampol, which was its historical name.
Ampol to buy Z Energy
Ampol has announced that it has executed an agreement to buy 100% of the New Zealand business Z Energy.
The cash offer was/is NZ$3.78 per share for a total cost of around NZ$2 billion. It represents a 35% premium to the last closing price on 26 July 2021, which was the day before media reporting of potential corporate activity.
The acquisition enterprise value is NZ$2.8 billion, representing 9.7 times the mid-point guidance for EBITDAF (EBITDA explained) for FY22, before synergies.
Z Energy will also pay an interim dividend amount of NZ$0.05 per share. Any other dividends will reduce the offer price by that equivalent amount.
The transaction is unanimously recommended by Z Energy’s board of directors.
What is Z Energy?
Z Energy is the market leader in New Zealand with a 40% market share of New Zealand fuel sales and a similar business model to Ampol.
What are the benefits of the deal to help the Ampol share price?
Ampol said the deal will create a trans-Tasman fuel champion with a combined network of around 2,400 sites and supplying around 23.5 BL per annum of fuel to customers in the Asia Pacific region, utilising Ampol’s international supply chain.
Management believe there are “material” transition and synergies opportunities. The company has put the opportunity range at between NZ$60 million to NZ$80 million. This is largely through fuel procurement and overhead costs.
Ampol referred to compelling financial returns, it’s targeting this deal to add in the double digits to profit/earnings per share (EPS) and at least 20% to free cashflow in 2023.
Time will tell if this deal goes through and how much it adds to Ampol’s profit. But it seems like a useful acquisition. However, there are other ASX dividend shares I’d rather look at.
