26 August 2016

Couche-Tard to acquire CST Brands

Canada-based Couche-Tard this week signed an agreement to acquire CST Brands, a petrol station operator. With the assumption of net debt, the deal can be valued at about USD 4,400 million. According to data compiled by Zephyr, the M&A database published by Bureau van Dijk, the transaction is the largest among those that involve motor fuel retailers as targets since 2007.

The offer price of USD 49 is 44 per cent higher than CST’s close of USD 34 on 2nd March, the last trading day before the cash offer was first reported. CST’s share price has since surged to close at USD 48 on 19th August, the day prior to the deal being officially announced.

To finance the board-recommended takeover, which is expected to close early next year, Couche-Tard will take out a new term loan, as well as utilise its existing credit facilities and cash reserves. The transaction came after Couche-Tard acquired convenience store operator the Pantry (then listed on Nasdaq) last year for around USD 1,700 million.

Couche-Tard claims to be a leading convenience store operator in Canada, the US and some parts of Europe. In North America alone, it owns 7,888 stores, with 6,490 of them also selling motor fuel.

With revenue reaching USD 11,444 million in 2015, CST describes itself as one of the largest independent motor fuel retailers and distributors in North America. It employs 14,000 people and has a presence in 2,000 locations in the south western part of the US. In order to expand its business, it acquired the general partner of petroleum distributor CrossAmerica Partners in 2014 for around USD 85 million. With the CST acquisition set to go through, Couche-Tard expects to fall heir to a minority stake in CrossAmerica Partners, which has operations in 29 US states.

Upon completion, the combined entity will become an even larger player in North America. Alain Bouchard, founder of Couche-Tard, stated: “I have always thought that in our industry size matters, whether that be for purchasing, logistics, best practices or for becoming famous for our product categories.” Couche-Tard’s chief executive Brian Hannasch also commented that the merger will strengthen his company’s position in the Sun Belt and the east coast of North America.

Following the takeover, Couche-Tard plans to offload the majority of CST’s Canadian businesses to fuel wholesaler Parkland Fuel. Such assets, which are valued at about CAD 965 million (USD 747 million), include CST’s self-serving gas stations, as well as its commercial and home heat businesses. According to Parkland Fuel’s press release, the deal will expand its retail presence across Canada, giving its annual earnings a significant boost.

Couche-Tard has appointed Morgan Stanley and National Bank Financial as advisors to the acquisition, while Bank of America and JP Morgan are assisting CST.

© Zephyr