Life beyond the Square Mile
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19 December 2013
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5 May 2014
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16 May 2014
Osborne Clarke's Bristol and London offices have spent the past two months working on the acquisition of 182 petrol retailing sites and depots.
The 15-strong legal team, has been working on the takeover of supply contracts to 807 independently owned sites; documenting a complex asset purchase and share purchase agreement; sorting through the pensions and employment rights of 175 transferring employees; and cajoling banks into parting with £115 million on favourable terms.
The work has been done on behalf of the Frost Group Plc which has now completed the exchange of contracts for the purchase of Burmah Castrol's petrol retail and wholesale business in the UK.
The deal was finalised within the two-month exclusivity period set by Burmah Castrol. And the already tight time frame was cut by a further week because the company said there would be no underwriters or fund managers in the City to support the associated £47 million rights issue if contracts were exchanged during Ascot week.
As a result of the deal the Frost Group has moved from 16th to fifth largest petrol retailer in the UK - sandwiched between Texaco in fourth place and Mobil in sixth. Overall it will have over five per cent of the market and in some parts of the country, for example Northern Ireland, it will have an even larger market share.
In addition to the operation of company-owned petrol retailing sites, Burmah supplies over 800 independent sites on contracts where the dealers are tied to purchasing their motor fuel from Burmah for periods of up to five years. All these supply contracts are to be transferred to the Frost Group.
The Burmese lion is now an endangered species on the forecourt given that over the next two years nearly one thousand Burmah dealer sites and company-owned sites will all be revamped with the Frost Group's SAVE brand, giving SAVE a national identity.
Osborne Clarke has been acting for the Frost Group since 1993. During that time the group has been an acquisitive client and we have amassed considerable know-how on planning laws, petroleum licensing regulations, advertising regulations and other technical legal issues specific to the petroleum retail and wholesale business. We were, therefore, well equipped to carry out the mammoth exercise of purchasing this big package of sites in a hurry.
As with any transaction of this magnitude, the team had to deal with horrendous logistical issues. There was a conflict between the desire to carry out a high level of due diligence work and the absolute requirement to maintain confidentiality until contracts had been exchanged.
Since the acquisition was primarily one of a business and associated assets, the physical transfer of those assets has had to be addressed in some depth.
Over 180 properties will be conveyed or acquired (in some cases requiring landlords' consent) and numerous contracts will also require assignment, some of which are highly material to the operation of the business.
The amount of the consideration also brings into play the investigation provision of the Fair Trading Act. The exclusive ties with over 800 independent dealers have required careful analysis under UK and EC competition regulations.
Increasingly over the past few years petrol retailing has been a success story for specialist retailers like the Frost Group and the hypermarkets, whereas the major oil players have been losing ground.
This is partly a natural consequence of the recession and partly due to greater competition and the advent of cut-price petrol on a large scale.
In both scenarios "lean and mean" companies, with lower overheads and a higher degree of flexibility, have held their own while large organisations carrying vast corporate overheads are too cumbersome in a rapidly changing market place.
Sometimes to admit corporate defeat and pass the ball to a more entrepreneurial player which can win is the most sensible thing to do. Also, focusing on the sort of business you know and do best - for oil companies exploration and development and for retailers, retailing - has been a sensible survival policy for many.
Frost believes that for a conventional oil company to be profitable in UK petrol retailing at the present time, they need to control at least three per cent of the market through company- owned sites or four to five per cent of the market through a mixture of company-owned sites and dealer sites because of the normal overheads associated with a large organisation. With a number of conventional oil companies operating below these levels, one can expect continued buying and selling as serious players jostle to pick up a share of the market .
The deal has confirmed our long-held belief that a major regional firm with an established London office like Osborne Clarke can compete head-on with City firms for corporate work of this kind.
City firms would traditionally have expected to handle transactions like this, but this is no longer the way of things.
Expect to see a great many more deals handled by regional firms as clients look at new and better ways of getting legal advice and find that expertise exists outside the established players in the Square Mile.
Margaret Childs is a partner at Osborne Clarke, Bristol.