Glencore in bid for 75% of Chevron SA
Miner and empowerment partner Glencore offers $973m, while Sinopec's deal seems to have folded
Global diversified miner and trader Glencore has launched a $973m cash bid to buy 75% of Chevron’s Southern African operations, which appears to trump the $900m deal Chinese oil major Sinopec did in March to buy the Chevron SA assets.
The transaction comes after Chevron’s local black economic empowerment (BEE) partners, who own 25% of Chevron SA, reopened the sales process by exercising the pre-emptive right they have to buy the other 75%.
Bloomberg reported on September 29 that there was at least one other potential bidder, aside from Glencore, but Glencore confirmed on Friday that it had entered into an agreement with Off The Shelf Investments (OTS) to buy the stake.
OTS is the vehicle through which the BEE investors, which include African Legend Investments, Lithemba Investments and the South African National Taxi Council (Santaco), hold their stake. Prominent black entrepreneur Mashudu Ramano sits on the board of Chevron SA, but attempts to reach Ramano, African Legend, Lithemba and Santaco on Friday, to explain why the pre-emptive right was being exercised now but not earlier, were unsuccessful.
Asked about why the Sinopec deal appeared to have collapsed, US-based Chevron Corporation’s senior external affairs adviser of downstream operations, Braden Reddall, said the group did not comment on commercial matters.
Chevron SA is the second-biggest fuel retailer in SA, through 820 Caltex-branded service stations and supplies almost a fifth of SA’s petroleum products. It has an ageing refinery in Cape Town that requires significant investment for an upgrade to meet the latest fuel standards, and a lubricants plant in Durban.
Glencore said on Friday it would support OTS as technical and financial partner throughout the acquisition process and would retain the local management and workforce, but it planned to limit its net additional capital investment to less than $500m over the next 12 months. The Sinopec deal would have been the second-largest Chinese acquisition in SA, after Industrial and Commercial Bank of China bought into Standard Bank several years ago.
Glencore has become more active in the downstream fuel sector. It has an interest in fuel retail in Zimbabwe and in August entered Mexico’s fuel retail market. It agreed earlier in 2017 to sell 51% of its petroleum products storage and logistics business for $775m, which will be received by the end of 2017. It is expected to bring in a partner to co-finance the Chevron SA acquisition, which will limit its capital investment.
Peter Major, director of mining at Cadiz Corporate Solutions, said on Friday this was a good deal for Glencore and SA.
Glencore was a sharp deal maker with extensive experience in Africa.
It was certainly aware of the potential liabilities at Chevron SA, both the need to upgrade the Cape Town refinery and deal with its environmental legacy, but was still likely to have picked up a good asset.