Quebec fuel retailer aims for No. 1
Couche-Tard has a deal to buy CST
The largest fuel retailer in Quebec has struck a US$4.4-billion deal to become the largest fuel retailer on the continent.
Alimentation Couche-Tard Inc. announced an agreement Monday to buy CST Brands Inc. in an allcash, US$4.4-billion deal, which would add 2,000 locations in the United States to the company’s network of stores around the world.
“In terms of size, today, we’re already No. 2 in North America. I think with this transaction, we’re probably No. 1,” Couche-Tard president and CEO Brian Hannasch said during a conference call.
In a second, related announcement Monday, Couche-Tard said it would sell 45 per cent of CST’s fill-up station business in Canada to Red Deer, Alta.-based Parkland Fuel Corp. for $965 million, in order to avoid a fight with the Competition Bureau.
Taken together, CIBC World
In terms of size, today, we’re already No. 2 in North America. I think with this transaction, we’re probably No. 1.
Markets analyst Mark Petrie said in a research note that Couche-Tard will pay a net price of US$3.65 billion for CST Brands. Couche-Tard intends to fund the deal for CST from its debt facilities.
The purchase of CST, which operates the Ultramar and Corner Store gas stations around the U.S. and in Eastern Canada, gives Couche-Tard a presence it didn’t have in Texas — where observers say CoucheTard’s competitor 7-Eleven, Inc. has a large market share.
Monday’s deal also expands the Laval, Que.-based company’s network in Georgia, another state where Couche-Tard was trying to gain a foothold, and provides a large equity stake in another fuel retailer, CrossAmerica Partners LP, which owns 1,100 fuel stations in the U.S.
Kim Lubel, president and CEO of CST, said during a conference call that the two companies’ networks fit together “like a jigsaw puzzle.”
RBC Dominion Securities analyst Irene Nattel said in a research note that Couche-Tard and CST had complementary networks.
“Overall, we believe this transaction is highly attractive for CoucheTard as CST represents the last large strategic asset believed to be for sale in North America and in particular, it includes a strong presence in Texas,” Petrie said in a research note.
There are areas where both brands overlap and Couche-Tard said it could find US$150 million to US$200 million in “synergies” over the next three years.
The company has not yet identified which stores could be closed through that process, Hannasch said, adding that Couche-Tard would buy up more companies if opportunities arose. “If they’re out there, we’ll pursue them to the extent that we can,” he said.
It’s not clear, however, whether there are other large retail fuel deals being marketed.
Hannasch said the expanded network in the U.S. was the main reason Couche-Tard bought CST and the company is willing to sell off a large chunk of CST’s Canadian business to Parkland in an attempt to satisfy the Competition Bureau, which has yet to review the deal.
“It’s great to strengthen our network in Quebec and the Maritimes, but the real prize here for us, given our presence, is in the U.S. and particularly the entry into the Texas market and the synergies it creates where we’re joining our markets together,” Hannasch said.
If the Competition Bureau is not satisfied that Couche-Tard has limited its market share in Quebec and Atlantic Canada, the company could sell off more of the CST fillup stations to Parkland, and the value of the deal could rise from the $965-million figure announced Monday.
Parkland president and CEO Robert Espey said on a separate conference call that his company’s deal with Couche-Tard was the largest in Parkland’s history, and significantly expands its own network in Quebec and Atlantic Canada.
Parkland shares soared close to 16 per cent on Monday following the announcement, eventually closing at $29.27 in Toronto. Couche-Tard shares rose seven per cent, closing at $66.78 in Toronto.
“The acquisition is a major step toward our five-year strategic plan and our aspirational objective of doubling the business within five years,” Espey said, adding that the deal will increase the number of Parkland’s fuel stations in Canada by 46 per cent, to 1,555 sites.
Parkland operates a network of fill-up stations under multiple brands, including FasGas, Esso, Chevron and Race Trac.
The company has a large number of stations in its network in Ontario and in Western Canada but has been looking for an entry into the Quebec marketplace.
Espey said the company was “very excited” that the deal expands the company’s presence in the province.
In addition to those CST gas stations, Parkland is also buying CST’s home heating business in Canada and a handful of other business lines. The company is planning to finance the deal through a combination of debt facilities and a bought-deal private placement.