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SAN ANTONIO — Circle K parent Alimentation Couche-Tard appears to be the winner in the CST Brands sweepstakes.
According to the Wall Street Journal, a deal could be announced as early as this week, citing sources familiar with the situation. However, the news outlet cautioned it’s still possible another bidder — rumored to be Speedway LLC parent Marathon Petroleum Corp., Sunoco LP, OXXO Mexico and multiple venture capital firms — could still prevail.
Bonnie Herzog, managing director, beverage, tobacco & convenience store research for Wells Fargo Securities LLC, has long looked at Couche-Tard as a likely acquirer for CST Brands.
"Couche-Tard has been actively pursuing a merger & acquisition strategy in the United States, most recently through its acquisition of [The Pantry]," she said. "CST would fill a broad geographic gap with its strong Texas presence and also get Couche-Tard closer to the No. 1 c-store operator, 7-Eleven, in terms of size."
Terry Monroe, founder and president of American Business Brokers & Advisers, added once CST is acquired, Couche-Tard will focus on improving in-store operations at CST Brands locations. He also expects cost cutting to take place at acquired CST locations.
Regarding why the deal makes sense for Couche-Tard, Monroe responded the parent of Circle K "can add to its geographic footrptint in the southern portion of the United States. Texas is one region that is desirable, as is Georgia [where CST Brands acquired Flash Foods Inc. sites]."
CST Brands was valued at $3.4 billion before the report, but rose to $3.55 billion in Tuesday morning trade. It’s assumed Laval, Quebec-based Couche-Tard would at least pay this $3.55 figure to CST Brands, and probably more. Experts predicted CST Brands could fetch at least $50 per share, with Herzog predicting a price that could reach up to $56 per share. The company traded at approximately $47 per share on Aug. 16.
Two venture capital firms that own shares in CST Brands, JCP Investment Management LLC and Engine Capital LP, have criticized the retailer in the past for poor merchandise sales. These activists' efforts led CST to appoint convenience store industry veterans Tad Dickson and Rocky Dewbre to its board of directors and undertake an “exploration of strategic alternatives to further enhance shareholder value.”
This review led CST to shed some underperforming assets, including 79 convenience stores in California and Wyoming, which the company sold to 7-Eleven Inc.
CST Brands Inc. operates approximately 2,000 locations throughout the southwestern United States, Georgia, Florida, New York and eastern Canada.