DCC to buy Texaco oil in UK from Chevron for €27.5m cash

INDUSTRIAL HOLDING group DCC has agreed to buy the UK oil distribution business of American fuel giant Chevron, which operates under the Texaco brand, for €27.5 million in cash.

The UK business distributes one billion litres of fuel and heating oils to about 100,000 customers located primarily in southern England and Wales.

DCC sells about 3.2 billion litres of oil in Britain each year.

The group said the profit contribution from the division would be "modest" in the current financial year, though it "should improve significantly in the following year".

The transaction, which is due to close at the end of this month, brings DCC's share of the UK oil distribution market to about 13 per cent from 10 per cent, adding 26 trading locations to DCC's existing 101. The group aims to raise its share to 20 per cent.

Oil distribution accounts for about 45 per cent of the group's operating profit.

DCC will also acquire 167 road tankers and a workforce of 356 as part of the deal. The transaction is being carried out through DCC's subsidiary GB Oils, which is also entering into a long-term supply arrangement with Chevron.

DCC's share price rose 2.7 per cent to close at €15.98 yesterday.

The deal is DCC's first major acquisition since its founder Jim Flavin resigned as executive chairman in May following the Supreme Court's decision that he had unlawfully engaged in insider dealing in the sale of DCC's stake in fruit importer Fyffes in 2000.

Tommy Breen, who became chief executive of DCC following Mr Flavin's departure, said: "The acquisition of the Texaco distribution business will bring significant further scale to DCC's oil distribution business in Britain and is consistent with our strategy of growing our presence in this market."

Gavin Kelleher, analyst with stockbroking firm Merrion Capital, said in a research note: "Overall, we view this as a positive deal for DCC. The group has a strong track record of integrating acquisitions in this division by achieving good synergy benefits from its existing network."

John Sheehan, analyst with NCB Stockbrokers, said: "DCC has a record of buying well and generating returns of 20 per cent plus from investments in the sector. This is no exception."

He said he expected a very modest contribution to the group's earnings in its fiscal year to March 2009 but that the deal should boost earnings per share by about 2 per cent in the following year.