Woolworths has announced it intends to sell its fuel business to BP for nearly $1.8 billion, months after the company said it had received indicative proposals from several parties.

The deal includes its 527 fuel convenience sites and 16 development sites.

Woolworths had been mulling over a potential sale of its fuel business for some time as the company has been under pressure to preserve capital after its failed home improvement venture Masters saw it post a loss of $1.2 billion in its full year results in August, while petrol and food sales also slumped.

“The release of $1.785 billion from the sale will be used to strengthen our balance sheet and reinvest in our core businesses,” Woolworths chief executive Brad Banducci said in a statement to the stock exchange.

“Following extensive evaluation of the proposals received, we decided that BP’s proposal met our strategic and broader commercial imperatives and in its entirety provided superior long-term shareholder value.”

Woolworth’s fuel arm reported earnings before interest and tax and before significant items at $117.8 million in FY16.

“This was the arm of their business they could quite easily sell, there are a lot of buyers in this field with deep pockets and this is probably the easiest deal for Woolworths management to do,” chief market analyst at CMC Markets Michael McCarthy said.

The deal would preserve Woolworths’ fuel redemption scheme, and would also trial a joint convenience store business at 200 BP petrol stations.

The sale is still subject to regulatory approvals from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).

Woolworths said it did not expect the deal to be completed until January 2018 at the earliest.

Shares in Woolworths were up 1.8 per cent to a two-month high of $24.28 at 11:06am (AEDT).

Disappointment for Caltex, NRMA concerned

Caltex Australia had previously made a bid to buy Woolworths’ fuel business, and has a 3.5-billion-litre fuel supply agreement with Woolworths linked to Woolworths’ ownership of its fuel arm.

“Whilst we are naturally disappointed that the successful fuel alliance will come to an end, it is important we exercise financial discipline in pursuing growth. That growth must be in the best interests of Caltex shareholders,” Caltex chief executive Julian Segal said in a statement.

BP is on track to become Australia’s biggest fuel retailer after the deal. Photo: Getty

Caltex said until the deal was completed it would continue to provide fuel supply to Woolworths.

Shares in Caltex fell 1.2 per cent to $30.25 by 11:05am (AEDT).

Meanwhile, the National Roads and Motorists’ Association (NRMA) said it was concerned and wanted the ACCC to look closely at the deal.

“If it does go ahead, what it means is that BP will largely own about a third of the volume of fuel sold in Australia every year, that’s a significant amount for one player and that will have an effect on how others can compete,” spokesperson Peter Khoury told ABC News.

The NRMA said BP’s current market share was around 13 per cent according to the latest figures available, which are around two years old.

“I think what we want to make sure happens above all else is we have a market where the independents can continue to compete — they are they only ones who are putting downwards pressure on prices,” Mr Khoury said.

– ABC