08/22/2016 13:22 EDT | Updated 08/23/2017 01:12 EDT

Alimentation Couche-Tard announces US$4.4-billion deal to boost presence in U.S.

MONTREAL — Alimentation Couche-Tard plans to further expand its presence in North America with a US$4.4-billion friendly acquisition, the biggest in the Laval, Que.-based company's history, that would make it the largest convenience store operator in Canada and the U.S.

The company that owns the Mac's and Couche-Tard convenience store chains said it was buying CST Brands, which is headquartered in San Antonio and has more than 2,000 stores in the U.S. and Eastern Canada.

Brian Hannasch, CEO of Alimentation Couche-Tard (TSX:ATD.B), said the transaction offers a unique opportunity to acquire one of the few remaining public companies of any scale that fills a few gaps in its U.S. retail operations.

"It's like a jigsaw puzzle that we're fitting the pieces together," he said during a media conference call.

The deal, which includes assumed debt, allows Alimentation Couche-Tard to boost the number of its stores in Texas, a growing market it has been eyeing for a few years, add 165 sites in Georgia and north Florida, and strengthen its Circle K brand's footprint in Arizona and Colorado.

Under the agreement, Alimentation Couche-Tard would pay US$48.53 cash per share of CST Brands, the fourth-largest operator of convenience stores in the U.S. CST shares closed Monday at US$47.46 on the New York Stock Exchange.

In a related announcement, Alimentation Couche-Tard would then sell most of CST's business in Canada, including commercial and home energy, to Parkland Fuel Corp. (TSX:PKI) of Red Deer, Alta., for about C$965 million. Parkland Fuel and Alimentation Couche-Tard would each have the rights from Valero Energy — which spun off its retail operations, creating CST Brands — to use the Ultramar brand.

Parkland Fuel CEO Bob Espey, speaking in a separate conference call, said that deal would make his company a "truly pan-Canadian" fuel business by extending its reach in Quebec and Atlantic Canada.

Both deals are subject to approval by the federal Competition Bureau.

After the CST deal closes, which is expected early next year, Alimentation Couche-Tard will have a network of nearly 15,000 stores, with 10,180 in North America before selling some of them to Parkland Fuel, the company said. 7-Eleven, in contrast, says it is the world's largest convenience store retailer with 60,000 locations, including 10,800 in Canada, the U.S. and Mexico.

Alimentation Couche-Tard has agreed to sell at least 45 per cent of CST's Canadian retail locations in Ontario, Quebec and Atlantic Canada to satisfy concerns of the Competition Bureau, although a list of locations hasn't been determined.

The remaining CST locations plus Esso stores about to be added to its existing network would leave Alimentation Couche-Tard in a strong position in Central and Eastern Canada, Hannasch said. Any future acquisitions would likely focus west of Quebec, he added.

Hannasch acknowledged that the company's growth, largely due to a series of massive acquisitions including its entry into Europe with the 2012 purchase of Statoil Fuel & Retail, has lifted shareholder expectations.

"We can't control the perception," Hannasch said. "We'll continue to watch for opportunities like CST and if they're out there, we'll pursue them to the extent we can."

As a result of the acquisition announced Monday, Alimentation Couche-Tard expects to see US$150 million to US$200 million in annual cost savings within 24 to 36 months.

Alimentation Couche-Tard's more commonly traded B shares on the Toronto Stock Exchange hit a record high of $67.99 on Monday before settling at $66.78, up nearly 7.5 per cent. Parkland Fuel shares closed up by nearly 16 per cent to $29.27.


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