Coles Group to sell convenience store business to fuel partner Viva Energy
Coles Group is to sell its fuel and convenience business to listed Viva Energy for $300 million in a deal which will have to first satisfy the competition regulator and gain foreign investment approval.
Assuming the deal proceeds, it will settle in the second half of next year, allowing Viva Energy to create what it describes as the largest fuel and convenience network under one operator. Viva Energy and Coles have been operating the business in a partnership that was otherwise scheduled to end in 2029.
Coles will assign leases on the 716 Coles Express sites that represent a liability of $816 million on its balance sheet. All sites will be rebranded by Viva Energy during the next two years.
Coles Group said the sale would not affect the four cents per litre fuel docket program and Viva would continue to partner with the Flybuys program.
Australia’s convenience store sector is growing at a rate of about 3.1 per cent annually, with Coles Express sales rising by 3.7 per cent on average during the past seven years, according to data compiled by Viva Energy.
Steven Cain, CEO at Coles, said the deal will allow the company to focus on its growing omnichannel supermarket and liquor business.
“This agreement is positive not only for Coles and Viva Energy, but also for our customers, team members and respective shareholders. Viva is well-placed to make the most of opportunities to grow the Express business into the future, while we will strengthen our focus on our omnichannel supermarket and liquor businesses and our ambition of becoming Australia’s most sustainable supermarket group,” he said in a statement.
Viva Energy said the deal enabled the company to “pursue emerging revenue streams across the entire retail ecosystem including in food and beverage, new energies, digital, logistics and last-mile delivery”, allows synergies from the integration of network and store development, and streamlines marketing and capital spending.
Scott Wyatt, CEO at Viva Energy, said his company had enjoyed a strong partnership with Coles over the past 20 years and the sale represented an exciting next step for the business and its relationship with Coles, which will remain a wholesale supplier. Viva will continue to stock Coles’ own-brand products.
“The acquisition means we will be able to accelerate our plans to grow the integrated fuel and convenience business while our customers continue to enjoy the excellent customer service provided by the dedicated Express team, the extensive product range in-store and the loyalty programs we know they love.”
Coles said it expected to achieve a “small gain” from the sale. Last financial year, Coles Express sales reached $1.132 billion, delivering a pretax profit of $42 million and with an imputed lease interest of $38 million.
Viva Energy said that while it anticipates increased earnings potential from convenience sales growth and operational synergies, it expects to invest between $120 and $140 million in transaction and integration costs during the next three years.
The company believes demand for traditional fuels is expected to remain strong well into the next decade, “and the adoption of new energies such as battery and hydrogen electric vehicles will lead to a growing demand for convenient on-road recharging and refuelling options, and therefore new convenience growth opportunities”.
The deal will now be subject to Viva obtaining clearance from the Australian Competition and Consumer Commission and approval from the Foreign Investment Review Board.
Viva Energy has created a team to oversee the takeover and transition, led by Megan Foster, executive GM of the company’s energy retail business.
Viva Energy already has a 50 per cent stake in regional fuel chain Liberty Energy and the rights to acquire the balance in 2025. Liberty operates 92 sites.