APL seeks to add more through Admore

Corporate acquisitions in Pakistani market are few and far between. So, any M&A activity should ideally bring about significant activity in the stock price of the relevant players involved.
But the investors reaction on Attock Petroleums (APL) desire to acquire a 100 percent stake in Admore Gas (AGPL), surprisingly, was rather short lived and less exciting. APLs stock went up just 2 percent in the opening trading session of the week and remained largely flat the next day.
The fact that APL has just signed an MoU with AGPL and the deal is only to be finalized upon completion of the due diligence process, for which no timeline has been provided, probably kept the investors from being overly excited on the acquisition story.
Admore Gas is a private company, which was issued a marketing license in 2003. But ever since its inception, it has failed to penetrate the retail market.
AGPL has a relatively large fleet of nearly 350 retail stations, but that has failed to spur volumetric sales. The company has been losing its grip continuously on the market with its share dropping from 1.2 percent in 2006 to a mere 0.2 percent in 2009.
APL on the other hand has eyed this opportunity to further strengthen its high margin retail business strategy.
What is Admores weakness can easily become APLs opportunity as AGPLs retail stations can provide APL with a chance to take full use of the advantage that it possesses, through its groups two refineries.
This also presents APL with a larger platform to showcase its high margin lube products that have acted as the saving grace for the company in times of distress.
The vertical integration of Attock group will ensure fuel supply to the newly acquired retail outlets, something which the stand alone business model of AGPL did not enjoy. The acquisition would likely increase APLs market share by much more than currently enjoyed by AGPLs, as it would take steps to bring the sales/day per site at par with its existing outlets.
But for this to happen, APL will have to make considerable investments in the acquired retail stations to upgrade and modernize the facilities up to its standards. Given that the firm already has 265 retail stations in operation, a rationalization of outlets by closing down the underperforming ones cannot be entirely ruled out.
In the absence of published accounts of AGPL, being a private limited company, one could only guess about the final strike price of the deal. Industry voices, however, estimate the deal to be struck somewhere between Rs2.5 billon and Rs3 billion.
Whatever the price, APL would likely get a good discount looking at the dismal performance of AGPL over the course of years. Still, for any further verdict on the deals valuation and its impact on APL, it is best to wait for the due diligence process to be over.
Looking at the industry dynamics, this might just be the start of a flurry of such acquisitions in the future as smaller disintegrated players would find it tough to stand the competition.