MELBOURNE (Reuters) - Australia's antitrust regulator on Thursday blocked BP Plc's A$1.8 billion (1.04 billion pounds) purchase of Woolworths Ltd's petrol stations, even after the oil company offered to sell some stations to ease competition concerns.
BP and Woolworths, which wants to exit the business to focus on its supermarkets, said they were disappointed by the decision after months of talks with the Australian Competition and Consumer Commission and were reviewing what to do next.
Decisions by the commission can be challenged in court.
"We remain confident that, with appropriate divestments as offered by BP, this transaction would not substantially lessen competition," BP Australia President Andy Holmes said in a statement. "In light of this, we are currently consulting with our lawyers to determine our next steps."
Woolworths shares initially fell 1.4 percent after the announcement but recovered to trade down 0.7 percent in a broader market that was up slightly. While the asset sale was blocked, its petrol retail revenue stream remains unaffected.
Investors said the rejection was not a total surprise, given the regulator had flagged concerns about the deal earlier this year. The acquisition was announced in December 2016.
"I don't think it's significant for Woolworths," said Stephen Bruce, a portfolio manager at Perennial Value Management, an investor in Woolworths.
The main issue for Woolworths is that following any sale of its petrol stations it wants its supermarket shoppers to continue to receive fuel discounts from the new owner, which the regulator cleared separately on Thursday.
The blocked acquisition boosted BP rival Caltex Australia Ltd, which stood to lose a major fuel supply contract with Woolworths that it said previously would have cost it up to A$150 million in lost earnings before interest and tax, or 15 percent of its forecast earnings for 2017.
Caltex shares rose as much as 5.2 percent. The company said on Thursday it would continue to supply Woolworths.
The competition watchdog said BP's acquisition would likely lead to higher fuel prices, highlighting that BP's prices on average were sharply higher than Woolworths in Australia's big cities.
It said BP tended to raise fuel prices faster than Woolworths and lower them more slowly in response to oil price changes. If Woolworths were no longer a competitor on pricing, it added, all remaining players would raise their fuel prices.
"The bottom line is that we consider motorists will end up paying more, regardless of where they buy fuel, if this acquisition goes ahead," ACCC Chairman Rod Sims said in a statement.
(Reporting by Sonali Paul in MELBOURNE; Additional reporting by Susan Mathew in BENGALURU; Editing by G Crosse and Rosalba O'Brien)