Analysis: The Betting Line on a CST Sale
By Mitch Morrison on Jun. 03, 2016OAKBROOK TERRACE, Ill. -- As news emerges of players interested in acquiring CST Brands’ retail network, CSP Daily News has for weeks been investigating potential buyers and their strengths, motivations and weaknesses. Based on interviews with analysts, investors and retailers—all of whom have spoken on condition of anonymity—here are our odds on who is likely to acquire the 2,000-site network of Corner Stores, Dépanneur du Coin, Nice N Easy Grocery Shoppes and Flash Foods in the United States and Canada.
Alimentation Couche-Tard
Odds: 2-1
Couche-Tard has been in touch with CST Brands, and it has expressed a desire to grow in the United States and Canada. With The Pantry’s network—acquired by Couche-Tard in 2014—fully tucked in, Circle K’s parent has great interest in expanding its network in the country’s Southwest and to compete head on with 7-Eleven in its backyard in Texas. Couche-Tard is very well financed and has the most robust revolving credit facility in the convenience-store channel other than, perhaps, Marathon Petroleum Corp. What pushes the odds back just a bit is Couche-Tard’s well-respected discipline for not overspending on acquisitions. If the company refuses to budge from a 9x multiple, it may be hard to seal the deal.
7-Eleven Inc.
Odds: 3-1
Sources say this is not a deal 7-Eleven would have initiated had CST Brands been performing better and not looking for an exit strategy. However, the notion of Couche-Tard occupying such a significant slice of Texas real estate has the largest c-store retailer in North America anxious and willing to fend off what would become the new No. 1 in store count. Sources have also said that while Couche-Tard is unlikely to pay above 9x (potentially slightly higher) company earnings, they do believe that 7-Eleven would ramp up to double-digit multiples, which it has done so previously. It’s worth pointing out that the chain recently acquired 76 stores from CST Brands in California and Wyoming. Is that relationship just beginning to blossom?
Marathon Petroleum Corp./Speedway
Odds: 6-1
Recently named the No. 1 U.S. employer by Forbes, Marathon is a five-star performer with the wherewithal to seal a deal to acquire CST Brands. The biggest obstacle is its proximity to the multibillion-dollar Hess acquisitions. More specficially, we hear that Marathon’s Speedway retail arm continues to work very hard to integrate the Hess network. While the branding is virtually complete, much work internally continues to be done to optimize those assets in a far more competitive Northeast region that includes Cumberland Farms, 7-Eleven, Wawa, QuickChek and Sheetz, among others. The idea of taking on another giant retail network in another part of the country could put a strain on the Hess integration strategy.
TravelCenters of America
Odds: 10-1
TravelCenters of America (TA) has been aggressive in cobbling together a nice patch of convenience-store chains and has vowed to be a serious c-store player under its Minit Mart brand. Acquiring CST Brands would be a dramatic change from the small and midsize buys TA has made so far. Most don’t believe TA will be a prominent player, but the company does have cash and has been willing to pay high multiples.
Private Equity/Venture Capitalists
Odds: 10-1
There is much speculation that a new player may emerge in the c-store landscape. Early reports show interest from private-equity firms Blackstone Group LP and Apollo Global Management LLC. While it's possible, we expect there will be no discount in a CST Brands deal. Sources say a venture-capitalist player will not want to pay top dollar, which would undercut its ability to optimize the deal into a 3- to 5-year flip.