Couche-tard eyes move into Germany
Canadian chain focuses expansion plans on Europe
Canadian convenience store giant Alimentationcouche-Tard Inc. is eyeing Germany for its next big move after it takes time to digest its $2.8-billion US proposed takeover of Norwegian service station operator Statoil Fuel and Retail ASA.
Laval, Que.-based Couche-tard studied the European market thoroughly before making its bid for SFR and concluded northern Europe would be the focus of its expansion. Snagging oil giant Statoil’s gas stations and management team was the first and most attractive opportunity.
Germany, the United Kingdom and the Benelux countries — Belgium, the Netherlands, and Luxembourg — are next on the list as oil producers like Royal Dutch Shell PLC and Exxonmobil Corp. divest retail assets over time, said Couche-tard chief financial officer Raymond Pare.
“Germany is clearly on our radar and at the top of the list,” Pare said in an interview Thursday, adding the nation’s market is as solid as Scandinavia. “We did assess basically almost all the networks in these countries. We know pretty well what we want and what we don’t want.”
Couche-tard surprised the market Wednesday with its blockbuster bid for SFR, which would add $500 million in earnings before interest, taxes, depreciation and amortization and 2,300 service stations to its $800-million EBITDA and 5,800-store network in place as of last January. The friendly deal is conditional on Couche-tard winning 90 per cent of SFR’S total shares outstanding.
The takeover would see CoucheTard, which operates almost exclusively in North America under the banners Couche-tard, Mac’s and Circle-k, expand overseas for the first time. The company has licensees in Asia but it is approaching that region cautiously, saying it will take years to understand markets there.
Couche-tard will use SFR and its leadership as a springboard for expansion on the continent. But no single deal is likely to be as large as the SFR transaction. And CoucheTard won’t proceed until its balance sheet has had time to “regain some flexibility” from the added leverage imposed by the SFR bid, Pare said.
Desjardins Securities analyst Keith Howlett said buying Statoil Fuel and Retail ASA has the potential to add more than $7 per share to CoucheTard’s share price.
Couche-tard is offering to pay the equivalent of 6.9 times enterprise value over EBITDA based on SFR’S 2011 earnings. It is funding the deal with a new three-year, $3.2-billion credit facility and an existing $1.5-billion credit line.
It expects to reach an adjusted net debt to EBITDAR — ratio of about three times within 18 months after closing the deal. It noted the leverage is lower this time than when it bought Circle-k in 2003. EBITDAR measures earnings before interest, taxes, depreciation, amortization, and restructuring costs.
The SFR deal comes with two curious pieces of baggage that have largely escaped the attention of investors. One: Couche-tard would inherit a unionized labour force at SFR at the same time it is trying to limit the inroads of organized labour at home in Quebec. Two, it would become the de facto owner of SFR’S aviation fuel and lubricants business — assets it would likely try to sell at the earliest opportunity.
Moving into Europe in a big way “brings with it some concern” for Couche-tard shareholders, TD Securities analyst Michael Van Aelst said in a note late Wednesday.
Attempts by certain eurozone countries to rein in spending to contain their debt troubles threaten economic growth. But 88 per cent of SFR’S EBITDA comes from the “much healthier” Scandinavian market, he said, which should quell those concerns.
Howlett said buying SFR has the potential to add more than $7 per share to Couche-tard’s share price. But at the stock’s current level above $38.00, much of the appreciation potential has already happened, he said.