Woolworths' Strategic Alliance with Caltex: Share Price Analysis

This case study examines the impact of Woolworths' strategic alliance with Caltex following the collapse of its deal with BP. The analysis focuses on the share price reaction before and after the announcement, highlighting the initial drop due to the failed BP acquisition and subsequent market response to the Caltex agreement. Key aspects of the alliance, including the expansion of the Woolworths redemption network at Caltex sites, co-creation of convenience stores, continuation of IPO plans, extension of fuel supply arrangements, and expansion of the Woolworths rewards program, are discussed. The corporation's response to the news, acknowledging Woolworths' resilience and anticipation of future IPO plans, is also considered. The study references news articles and academic sources to provide a comprehensive overview of the event and its implications for Woolworths and the capital markets.

Contemporary issues in accounting
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“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.

Key highlights of the agreement were –
125 Caltex sites will be added with the existing 638 sites redemption
network of Woolworths
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).

Impact on share price
Before announcement After announcement

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.

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.

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].