Anatomy of a takeover: How the Aussies took over NZ’s biggest fuel retailer

Z Energy – once New Zealand’s own fuel retailer – is now talking with an Aussie accent.

The company, which at one time was a significant part of the local sharemarket, this week passed into the ownership of Australian fuel company Ampol.

Z Energy was born when Infratil and the NZ Superannuation Fund bought Shell’s New Zealand fuel distribution assets for $696 million in 2010. By 2013 the stock was listed on the NZX and by 2016 its share price had more than doubled – peaking at $8.87.

But this week Z delisted from the NZX and the company is now owned by Ampol, Australia’s biggest fuel retailer. By itself, Ampol is about twice the size of the entire New Zealand fuel industry.

For a company that started with great promise – and with 10,000 or so mostly Kiwi investors on board – how did Z end up in foreign control?

Chief executive Mike Bennetts, who is staying on in the role, says government regulation ultimately played a part in making Z a takeover target.

Bennetts says it is sad to see another New Zealand company de-list from the NZX, but investors would nevertheless get the chance to “cycle out” of Z Energy and into Ampol when that company lists on the NZX on Tuesday.

For shareholders who have stuck with Z Energy, it really has been a rollercoaster ride.

Three years after listing, Z bought up the Caltex and Challenge petrol station chains for $785m.

In the first six or seven years, as Bennetts sees it, the company “got really good at understanding what the customers were looking for”. But over the past couple of years the stock has languished, trading well under $4.

What happened?

In 2018, the Commerce Commission undertook a study looking into competition in the supply of retail petrol and diesel, and whether the market was working well for consumers.

In its final report, published in December 2019, the commission concluded: “We found that an active wholesale market does not exist in New Zealand, and this is weakening price competition in the retail market.

“Fuel companies have been making persistently higher profits over the past decade than we would expect in a competitive market.” A year later came the Fuel Industry Act, aimed at freeing up competition.

Bennetts says the review prompted a lot of political commentary about how Z conducts its business.

“We came out the back of that with a set of regulations and the Fuel Industry Act that actually flatters Z in the way we run the company.”

Bennetts says several factors drove the share price down. “Clearly there was the short term performance.

“Our profitability halved as a result of changes to the regulations – and then there was Covid-19 of course.

“We have been one of those businesses that have been more affected by Covid than others over the last two years.”

Along the way, more and more investors were thinking about whether they wanted to be involved with a fuel company like Z.

Depressed share price

“There is no single reason why share prices get depressed, but I do believe that after a while you do fall out of favour and I think Z was subject to that to some extent. And we had not had enough time after the regulatory review to able to put into effect the strategies that we always intended to do.”

Bennetts says the review created a lot of uncertainty “and frankly it really slowed us up in getting after some of our strategic initiatives”.

The lower the share price fell, the more the company came into play.

“The board worked really diligently to make sure that whatever price we sold the company at, that it was going to be really fair for shareholders.”

When Ampol appeared on the radar, Z Energy was trading at $2.80. Ampol then made approaches at $3.35 a share, $3.50 and $3.60.

In the end, Z was sold at $3.80 a share – “a good uplift for shareholders”.

Now the deal is done, Bennetts sees a much brighter future for Z over the next three or four years.

“It’s really easy to think of the terrible things that can happen from mergers and acquisitions, particularly in a transtasman deal,” he notes.

Upbeat on Ampol

“There is nothing that I have seen to date that would indicate that this is not going to go very well.

“Ampol … have been very considerate of the Z culture and the brand and local decision making, and I just think that this could be the best of both worlds.

“Usually with M&A’s there is a lot of concern about job security, about morale and motivation within the company.”

However, Bennetts says recent employment surveys show engagement is as high as it has ever been. And being part of a far larger group gives Z more options should things go wrong, he says.

Having been part of the IPO process, Bennetts says he feels he has now gone “full circle” to be part of the delisting.

When Ampol turned up on Z’s doorstep, he wasn’t completely surprised. “We always expected that we would have a bid come in.

“The share price had been depressed beyond what the market was going through, for a period of time.” The fact that the offer came from Ampol was no surprise either.

“They are actually a logical purchaser of Z for a variety of reasons and there had been some discussion between myself and the preceding CEO around what more our companies could do together – as far back as 2016.

“As two large domestic companies it made sense to collaborate with one another given that we were competing, in some cases, against multinational global companies.”

Even so, Bennetts says he has mixed emotions about Z Energy passing into foreign ownership. “I think when you start with something, you become very attached to it in your role as chief executive, and being a listed public company was an important step for Z.

“However, I am really excited aboutwhat Ampol actually does provide in terms of opportunities for our customers and the broader stakeholders in New Zealand.”

Ampol’s size, he says, is “a good thing because it helps to de-risk things like our supply chain.

“It gives us access to greater levels of capital and, if anything, it can help with the transition to a low-carbon future.

“There will not be any changes for our customers, or indeed, our employees in the main.”

Business as usual

Ampol will be keeping local management in place, and local decision making. The Z brand and strategies will remain.

The Z deal isn’t the only big change for New Zealand’s fuel industry. At the beginning of April, Channel Infrastructure – formerly Refining NZ – started operations as a dedicated fuels import terminal.

Over the next 12 months work will continue to decommission its Marsden Point oil refinery after 60 years as New Zealand’s sole refiner.

Under Ampol, refined product will be shipped from energy hubs in Singapore and Houston.

Z has made plans well ahead of the refinery’s transition. “We are in good shape to make sure that there are no downsides from that. All of the risks are well known,” says Bennetts.

“If anything, the size and scale of Ampol de-risks that change process.”

As in many mergers and acquisitions, synergy is the buzzword of the day, but Bennetts says the two genuinely do have a lot in common.

“At the highest level, we are very much the same. If you drop down one level we are a little bit different but not in a way that would cause concern about the risk of things going pear-shaped.

“Unlike most merger and acquisition deals, there is quite a lot of sympatico between the cultures and the way that the companies go about things.”

Going electric

Both Z and Ampol have made a commitment to a low-carbon future.

“We have been able to share from the past about what went well and what didn’t go well … If anything, this transaction allows us to accelerate towards a low-carbon future.”

And there’s quite a way to go: the average car in New Zealand is 14 years old and less than 1 per cent of the passenger fleet are EVs.

Bennetts doesn’t see batteries as feasible for heavy vehicles, which are more likely to adopt hydrogen fuel, he says.

“For aircraft, domestically I think we will have electricity-powered aircraft up and down the country, but for long-haul that’s going to be a sustainable aviation fuel or biofuel.

“These different use cases will require a different technology to be able to make it work, and electrification of the light vehicle fleet is the first place to start.”

Bennetts says the Ampol deal will allow both companies to accelerate towards a low-carbon future, but “that transition will take time”.

While Ampol’s takeover of Z was completed this week, Z is in the final stages of a sale and leaseback deal announced last year.

That transaction will involve the sale of 52 freehold retail properties for $140m, and Bennetts says the deal is expected to be closed some time this month.

Australian media have reported that Wellington property developer and syndicator Willis Bond was in talks to buy the sites, but Z declined to comment further.

Security of supply

Z Energy chief executive Mike Bennetts says New Zealand’s shift to importing all its fuel as refined product will improve the country’s fuel security.

In an opinion piece carried by the Herald, special counsel for Buddle Findlay Bassam Maghzal made a case for doubling the country’s minimum fuel stockholding.

“Russia’s invasion of Ukraine and its impact on fuel prices has highlighted New Zealand’s ever-present vulnerability to global supply chain disruptions,” he wrote. “The Government should be giving serious consideration to building additional fuel storage infrastructure.”

In interview with the Herald, Bennetts said New Zealand holds about 25 days’ worth of fuel at the moment.

As of April 1, Channel Infrastructure – in which Z has a stake – began its new life as a fuel importer, having previously been an oil refiner under the name Refining NZ.

In this new post-refining world, says Bennetts, “we are very happy that the current level of 25 days is about right”.

As well, he points out, “we have about 18 days’ stock within seven days’ sailing of New Zealand, so it has already left the refinery somewhere in the world and is well on its way to New Zealand, and within seven days that ship would be at a port and unloading.”

Bennetts says that even when the Marsden Point refinery was running, about a third of what was sold was already imported.

Putting together stocks in the country and shipments within seven days’ away, “those two together means we have about 40 days of stock.

“That’s actually higher than Australia and higher than we would typically expect from the refinery.

“We hold quite a lot of stock- more than enough to meet New Zealand’s needs.”

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