Viva Energy looks to buy SA’s OTR Group for $1.15 billion

Viva Energy (ASX: VEA), a major Australian fuel supplier and the operator of Shell and Liberty service stations, has today announced its intention to acquire South Australian convenience retail business OTR for $1.15 billion from Peregrine Corporation.

Hot on the heels of acquiring the Coles Express network for $300 million in September last year, Viva is to acquire OTR - an operator of service stations and convenience stores primarily in South Australia - in its bid to become Australia’s leading convenience retailer.

The deal is subject to customary regulatory approvals from the Foreign Investment Review Board (FIRB) and the Australian consumer watchdog and will diversify the buyer’s earnings exposure, lifting the share of earnings from non-fuel sources from approximately 30 per cent to an expected 50 per cent of its convenience and mobility business.

Established by Peregrine Corporation - South Australia’s fifth-largest company in 2022 and the owner of The Bend Motorsport Park and retail stores Smokemart and Giftbox (SMGB) - OTR operates a retail network of 205 company-owned and controlled leasehold stores.

These include 174 integrated fuel and convenience stores and 31 stand-alone stores, plus the company has leasehold rights to a growth pipeline of 90 sites - largely outside of South Australia - which will be developed into new OTR stores over the next few years.

Viva intends on taking the OTR brand national post-transaction, and will eventually do away with the Coles Express brand in favour of the OTR name.

The OTR Group also includes SMGB which provides tobacco and cigarette wholesale arrangements to OTR and other third-party networks, with a retail footprint of 257 company-owned and controlled leasehold stores across Australia plus an online retail website.

Viva would also gain control over the Mogas Regional and Reliable Petroleum wholesale fuel and lubricant businesses which serve customers in regional South Australia.

Ultimately, Viva is most interested in the convenience retail element of OTR which generates approximately 70 per cent of the group’s total earnings and was labelled by the suitor as ‘the most sophisticated convenience offer in the Australian market’.

Viva CEO and managing director Scott Wyatt said the proposed acquisition was ‘transformational’, and that OTR would become Viva’s ‘flagship convenience brand’ once it replaces the Coles Express brand over time, with a pathway to 1,000 stores nationally.

“The introduction of OTR’s superior convenience offering, including quick serve restaurants, will help revolutionise the diversity and attraction of our retail offering,” Wyatt said.

“As our stores increasingly become retail destinations, we expect convenience earnings will grow and reduce our dependency on traditional fuels.

“OTR outlets offer an attractive and welcoming store environment, supporting increased dwell time, which is likely to be a key factor in successfully introducing electric vehicle recharging facilities over time.”

Post-acquisition, which will be funded through $1 billion of debt and working capital, OTR founder Yasser Shahin will be retained by Viva to support the existing group and transition the business to Jevan Bouzo - Viva’s CEO of convenience and mobility.

Yasser is one of the three Shahin brothers that took over running Peregrine Corporation following the death of their father - Fred Shahin - who founded the business after acquiring a BP service station in 1984.

Together, they are considered South Australia’s richest family, with a combined net worth of $2.27 billion according to The Australian’s recently published Rich List.

Wyatt said that over the past three decades the Shahin family had built OTR into one of the most successful integrated convenience and fuel offerings in Australia.

“We are excited about the opportunity we have to take this proud South Australian business and brand nationally and are pleased to have Yasser Shahin work with us as we commence this journey,” Wyatt said.

“We also look forward to welcoming approximately 6,500 OTR team members to the Viva Energy business, learning from them and working with them to lift the standard of convenience retailing in this country.”

Yasser Shahin said the announcement marked an ‘incredibly exciting time’ for OTR.

“This transaction delivers the realisation of the vision I have always had, and vigorously pursued; to see OTR become national, to be the leading convenience brand in Australia and to remain true to our roots and based in Adelaide,” Yasser said.

“The coming together of one of Australia’s best retail networks with one of Australia’s leading convenience offerings has enormous industrial logic.

“I will continue to support the business following completion of the transaction, and the entire team and I are completely committed to the successful integration of these businesses. The Shahin family is committed to continuing to see Adelaide as the home of OTR and Viva Energy have provided for the realisation of a larger, enhanced OTR to continue to be headquartered here.”

Post-acquisition, the 6,500 OTR team members and support centre staff will be retained, and Viva Energy will keep the business’ head office in Adelaide to service the entire group’s convenience and mobility business over time.

Completion of the transaction is expected to occur in the second half of 2023, and will deliver $4.2 billion of sales revenue on a pro forma forecast FY23 basis, comprising $2.4 billion of non-fuel sales.

Further, the integration of OTR into the Viva Energy Retail and Coles Express networks is expected to drive synergies of approximately $60 million per annum, to be realised in three years.