Convenience Store Player Getting Stronger

04/26/2012 9:15 am EST


A major Canadian convenience store chain is expanding into the downstream oil business in Europe with its most recent acquisition—a perfect marriage for income investors, writes Marc Johnson of TheInvestment Reporter.

Alimentation Couche-Tard (Toronto: ATD.B) plans to enter Europe. On April 18, it agreed to pay $2.8 billion to buy Statoil Fuel & Retail.

Divesting assets other than the service stations could raise cash to repay debt. The market liked the proposed acquisition and drove up Couche-Tard’s shares.

Statoil F&R is the largest road transport fuel retailer in Scandinavia—which includes Denmark, Finland, Norway, and Sweden. Outside of Scandinavia, the company operates outlets in Poland, western Russia, and the Baltic nations of Estonia, Latvia, and Lithuania.

All told, Statoil F&R operates 2,300 full-service or automated stations. It plans to open 50 to 60 new stations a year. About four-fifths of them will open in central and eastern Europe.

Besides gas stations, Statoil F&R also delivers aviation fuel at 85 airports in ten countries. It sells marine fuel, stationary energy, lubricants, and chemicals. Couche-Tard may sell these assets and use the cash to repay debt.

Couche-Tard should keep other assets of Statoil F&R: a dozen key terminals in Europe, 400 road tankers and 50 depots in eight nations. This keeps Statoil F&R’s outlets humming.

Couche-Tard “anticipates significant and immediate accretion to net earnings per share.” It also expects Statoil F&R to generate lots of free cash flow.

Couche-Tard president and chief executive officer Alain Bouchard says, “We have successfully completed numerous significant acquisitions and are confident that we will be able to quickly and efficiently integrate our operations to form a stronger, more competitive player.”

It’s true that Couche-Tard has profited from past acquisitions. It can get to work in June, by which time it expects to have completed the proposed acquisition.

Couche-Tard Expects Big and Quick Profits
The transaction is conditional on Couche-Tard receiving at least at least 90% of Statoil F&R’s shares. We expect it to reach this threshold for several reasons. First, Statoil ASA (STO) has agreed to tender its stake of 54% to Couche-Tard.

Second, Couche-Tard’s offer is 52.5% more than Statoil F&R’s market share price the day before the acquisition was unveiled. This should lead most independent shareholders to tender.

Third, Statoil F&R’s directors have approved the transaction and recommend that shareholders accept the offer. Fourth, Couche-Tard has the right to match any higher competing offers. Fifth, Statoil would have to pay a "break fee" if it accepts a better offer.

One plus is that Scandinavia has some of Europe’s healthiest economies. This is particularly true of Norway, thanks to its large oil industry. In 2012, the economies of Russia and Poland are expected to grow by a fair 3.5 and 2.6%, respectively.

Couche-Tard says that it “plans to operate Statoil Fuel & Retail as a whole, preserve its strong brand and continue the existing strategy undertaken by the local executives along with sharing of best practices.” All the same, Couche-Tard will consider enhancing Statoil F&R’s product offering with things that have worked well in North America.

Couche-Tard Can Grow Further in Europe
Couche-Tard also sees Statoil F&R as “a European platform for future profitable growth.” For instance, it could pick up outlets divested by major oil companies—just as it has done in North America.

Couche-Tard currently operates a network of 5,817 convenience stores in all ten Canadian provinces and 42 of the 50 US states, as well as Washington, DC. It says that adding Statoil F&R’s stations to its own will give it “over 8,400 locations or sites.”

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