Couche-Tard on cusp on deal to buy CST Brands, says published report
A published report says Quebec-based Alimentation Couche-Tard could be on the cusp of reaching a deal to purchase rival CST Brands, bolstering its position as one of North America's largest convenience store chains.
The Wall Street Journal reports the deal could be announced as early as this week and would be worth at least US$3.4 billion, the market value of the Texas-based company.
The paper cites sources familiar with the matter.
However, the Journal warns other bidders—rumoured to include 7-Eleven, Marathon Petroleum, OXXO or a private-equity firm—could ultimately prevail.
Couche-Tard, which operates the Circle K brand, has 7,900 locations in North America, behind leader 7-Eleven. CST Brands has more than 2,000 locations in the U.S. and Canada.
Neither Couche-Tard nor CST Brands would discuss the potential deal.
"We are a growth company,'' said Couche-Tard spokeswoman Karen Romer. "We are a disciplined acquirer and have many targets going on at any one time but we don't comment on speculation in the media or in the industry.''
Chief executive Brian Hannash said earlier this year that recent acquisitions, including the Esso retail network, don't prevent the company from pursuing other acquisition targets, such as CST Brands, which in March said it was conducting a strategic review that could include selling its network.
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Analyst Irene Nattel of RBC Capital Markets expects the transaction would face Competition Bureau challenges, especially in Quebec, where Couche-Tard has about 800 stores and CST has 533 locations. In Ontario, it has some 1,000 stores while CST has 146 locations.
"Nonetheless, an analysis of the potential combination of CST's footprint in Canada and U.S. and that of Couche-Tard remains intriguing,'' she wrote in a report.
Nattel said the deal could provide cost savings, including better inside-store supply terms, more efficient gas margin/volume management, reduced corporate overhead and increased market presence.
However, Nattel said that existing long-term fuel supply agreements with Valero/Ultramar would appear to offset cost savings from re-negotiated fuel supply agreement.
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After failing in its public battle a few years ago to acquire Casey's General Stores, Couche-Tard has preferred ``done deals'' over public market transactions, she added.
Couche-Tard has been a consolidator in the convenience-store sector. Last year, it bought American retailer The Pantry's 1,500 locations for about US$1.7 billion, including US$840 million for capital leases and debt.
It operates convenience stores in Canada, the U.S., and Europe under the Couche-Tard, Mac's, Kangaroo Express, Topaz, Ingo and Circle K brands. The company earned US$1.2 billion on UC$34.1 billion of sales last year, compared to US$11.4 billion of revenues by CST.
On the Toronto Stock Exchange, Alimentation Couche-Tard's shares gained 2.4 per cent to C$61.55 in Tuesday morning trading.