Contemporary Issues in Accounting: Woolworth's Strategic Alliance with Caltex

This report discusses the impact of Woolworth's strategic alliance with Caltex on its share price and the corporation's response to the news. It also includes a summary of the selected news article, subject, course code, course name, and university.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
Name of the student
Name of the university
Student ID
Author note

1CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction................................................................................................................................2
Selected new article....................................................................................................................2
Impact on share price.................................................................................................................3
My corporation’s response regarding the news.........................................................................6
Conclusion..................................................................................................................................6
Reference....................................................................................................................................8

2CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
Woolworth is the largest super market chain in Australia operating it business through
995 stores all over in Australia. It manages some of Australia’s most trusted and recognised
brand. The company prides itself for creating world class experience for the consumers
throughout its stores as well as platforms. The report will focus on one news article related to
the company and its impact on the company’s share price (Woolworthsgroup.com.au 2019).
Selected new article
“Woolies strikes ‘Plan B’ deal with Caltex after collapse of BP sales” published on 5th July
2018 in “The Sydney Morning Herald”.
Woolworth announced that the company entered into the long-term strategic alliance
with Caltex. The company moved to Plan B for the business of service station after sale to the
BP collapsed that stroke 15 year supply agreement and the alliance with Caltex covering
convenience stores, loyalty rewards, fuel supply and wholesale food. However, retail giant
Woolworth will still involve in the sale of petrol business with the plans for an IPO that is to
be finalised within next year. Caltex supplied fuel to 534 service stations of Woolworths
since the year 2004 under the contract amounting to $ 150 million per year. However, it has
been slashed by the amount of $ 80 million as per the new deal with Caltex that faced losing
of the entire contract with the condition that BP sales will go ahead and will also make a one
off payment for an amount of $ 5 million to the company that is Woolworths (Patrick Hatch
2018). Key highlights of the agreement were –
 125 Caltex sites will be added with the existing 638 sites redemption network of
Woolworths

3CONTEMPORARY ISSUES IN ACCOUNTING
 Caltex and Woolworth’s group will co-create the market leading convenience that
will offer up-to 250 sites under metro banner.
 Woolworths will continue to practice the IPO or selling of the petrol business.
 Fuel supply arrangement from Caltex will be extended for the period of 15 years on
improved term for the petrol business of Woolworths
 Woolworths rewards will be extended for Caltex network (Woolworthsgroup.com.au
2019).
As per the agreement, Woolworths will be supplying foods over more than 700 Caltex
convenience stores those are already in existence and the entities will roll out convenience
offering as per the metro banner of Woolworths to up to 250 sites of Caltex over the period of
next 6 years with plan for 50 sites over next 2 years. The deals just came after the decision of
BT opted for not to continue with Woolworths $ 1.8 billion purchase for 543 convenience
and fuel stores of Woolworths (Melanie Beeby 2018).
Impact on share price
Before the announcement –

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After the announcement –

5CONTEMPORARY ISSUES IN ACCOUNTING
The announcement was made on 5th July 2018. Average return on share price for the
period of one month before the announcement, that is for the period from 1st June 2018 to 4th
July 2018 was 0.35%. On the other hand, average return on share price for the period of one
month after the announcement, that is for the period from 6th July 2018 to 6th August 2018
was -0.08% (Au.finance.yahoo.com 2019). Major reason behind the significant fall in the
return rate was that the announcement made just weeks after the British major oil BP opted
for not continuing with Woolworth that it was agreed to buy during 2016 but had been held
by the competition watchdog. If the British oil major would have continued with their
agreement it would have emerged as nationwide market leader. Owing to this Woolworths
had to find the alternative option for its petrol business. As per Mr Banducci, the CEO of
Woolworths they are disappointed with the announcement and decision taken by BP and they

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are required to move forward (Wang 2015). This decision of BP to opting out from the deal
with Woolworths already had a negative impact on the share price of Woolworths that led to
lower average return for that period. Today there are more than 600 petrol outlets co-branded
as Caltex Safeway and Caltex Woolworths all over the country. Co-branded Caltex
Woolworth’s outlets are included under the alliance among Woolworths Limited and Caltex
Australia Petroleum Pty Ltd. However, it took some time for the investors to regain faith on
performance of Woolworth’s stock and the company to regain its position. Hence,
immediately after BP announced their decision to opt out, share price of the company fetched
decrease in return (Heaney and Treepongkaruna 2017).
My corporation’s response regarding the news
My company came to know about the news through various Australian news papers
immediately after the announcement of the company to enter into an agreement with Caltex.
However, my corporation did not react that much regarding the news as Woolworths is a big
company and can be expected that son it will regain its position in the market. Further, as per
the statement of CEO, the IPO plans of the company were expected to flesh out within the
time period of 12 months. Apart from that the entity is open for the trade sale. He further
stated that the capital those were to be released from IPO can be put for the better uses as the
company is focussed on business. Hence, from the statement of CEO it was clear that the
company will recover its position very soon and there is nothing to worry about that
(Woolworthsgroup.com.au 2019).
Conclusion
From the above discussion it is concluded that though Woolworth is a market leader
in retail sector, after British major oil BP opted for not continuing with Woolworth had a
significant adverse impact on its share price. Owing to the event the company moved to Plan

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B for the business of service station and entered into 15 year supply agreement and the
alliance with Caltex covering convenience stores, loyalty rewards, fuel supply and wholesale
food. However, as per the CEO of the company the company will recover this position very
soon and the investors need not to worry for their investment.

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Reference
Au.finance.yahoo.com. (2019). Yahoo is now a part of Oath. [online] Available at:
https://au.finance.yahoo.com/quote/WOW.AX/ [Accessed 17 Jan. 2019].
Heaney, R.A. and Treepongkaruna, S., 2017. The Pricing of ULP and Diesel in the Western
Australian Retail Fuel Market.
Melanie Beeby, P. (2018). Woolies strikes 'Plan B' deal with Caltex after BP sale collapse.
[online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/business/companies/woolies-strikes-plan-b-deal-with-caltex-after-
bp-sale-collapse-20180705-p4zpki.html [Accessed 17 Jan. 2019].
Patrick Hatch, C. (2018). BP pulls out of $1.8b deal for Woolies petrol stations. [online] The
Sydney Morning Herald. Available at:
https://www.smh.com.au/business/companies/woolworths-says-bp-will-not-buy-its-petrol-
stations-20180621-p4zmrn.html [Accessed 17 Jan. 2019].
Wang, Z., 2015. Supermarkets and gasoline: An empirical study of bundled discounts.
Woolworthsgroup.com.au. (2019). [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/189696_woolworths-group-enters-new-
alliance-with-caltex.pdf [Accessed 17 Jan. 2019].
Woolworthsgroup.com.au. (2019). Annual Reports - Woolworths Group. [online] Available
at: https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports/
Annual_Reports [Accessed 17 Jan. 2019].