Stonepeak, CPPIB Look to Buy Castrol India Shares at Premium Following BP Deal

The Open Offer by the Canada Pension Plan Investment Board (CPPIB) and U.S. private equity firm Stonepeak involves an offer to acquire up to 26% of the shares of Castrol India Limited at a price of ₹194.04 per share, following their agreement to acquire the company from parent British Petroleum (BP). The offer price represents a 2.5% premium to Wednesday’s closing price.

The Open Offer follows an agreement under which Stonepeak will acquire BP’s 65% stake in Castrol, giving Stonepeak control over BP’s entire 51% stake in Castrol India Limited. Under India’s Takeover Regulations, acquiring 25% or more in a listed company triggers a mandatory open offer to purchase at least an additional 26% from public shareholders, potentially resulting in a majority stake and providing Stonepeak with a controlling interest in Castrol India.

But, the question remains, how will the change in ownership and control of Castrol India's incumbent corporate strategy affect the corporate strategies of both CPPIB and Stonepeak with regard to Castrol India Limited?

How Did the Transaction Structure Evolve?

Stonepeak has purchased a majority stake in Castrol from BP for USD 10.1 billion (approximately ₹90,000 crore in India), implying an EV to LTM EBITDA multiple of around 8.6x. The deal is expected to result in net proceeds of approximately USD 6.0 billion to BP, including around USD 0.8 billion related to the pre-payment of future dividend income on BP’s retained 35% stake, along with other standard adjustments.

CPPIB will invest up to USD 1.05 billion for an indirect stake in the business, and upon completion of the transaction, a new joint venture will be incorporated with Stonepeak holding 65% and BP retaining 35% ownership.

At the end of 2026, it is expected that this deal will receive approval from the regulatory authorities, and BP has a two-year holding period on its remaining 35% stake before being able to sell it. The transaction allows BP to continue to have exposure to growth in their global lubricants business while allowing them to make cash available from the lubricant's portfolio by selling their interest in Castrol.

Open Offer Mechanics and Premium

The SEBI's stipulated open offer entails the additional 26% from public shareholders at ₹194.04, as stated in the stock exchange filing. The acquisition by Stonepeak necessitates compliance with the open offer, which will provide an incentive to minority investors to sell and receive a premium for their interests in Castrol India. This 2.5% premium can motivate retail holders to participate in the sale price, considering the challenges associated with the transfer of control from BP to Stonepeak.
The open offer guarantees that the retail holders will receive fair treatment when there are changes in the control of the listed entities.

Strategic Implications for Castrol India

With Stonepeak gaining control of Castrol’s 51% ownership stake in Castrol India, the private equity firm will exercise greater influence over the strategic direction of the Indian operation.

BP’s retained 35% stake in the parent Castrol entity ensures continuity, supported by a track record of nine consecutive quarters of year-on-year earnings growth. The joint venture structure balances private equity-led growth initiatives with BP’s established brand strength and operational expertise.

The CPPIB, through their involvement in this transaction, will bring long-term institutional capital to support the continuous investment into the company.

As a result of this transaction, Castrol India will be positioned to grow rapidly as the demand for automotive and industrial lubricants increases due to the increase in vehicles sold and manufactured.

With Stonepeak-CPPIB's ₹ 194.04/share open offer following BP's Castrol exit, the key question for investors is, how swiftly will new ownership execute growth strategies to capitalise on India's expanding lubricants demand?

Sources:

MSN
Reuters