Assessing Hess Divestiture

Several major retailers expected to bid, Couche-Tard "only at a price"

Steve Holtz, Editor in Chief, CSP Daily News

NEW YORK -- A new analysis of the possibility Alimentation Couche-Tard Inc. will purchase Hess Corp.'s retail assets places that likelihood at a slim 30%. And the report suggests several major convenience store retailers will likely be in the hunt for the approximately 1,350 sites as Hess looks to focus more on upstream oil activity.

One pending question is whether the Eastern Seaboard chain will be sold as a whole or divided into regions.

"Approximately one‐half the Hess network would 'fill out' Couche‐Tard's northeast U.S. footprint," wrote analyst Keith Howlett of Desjardins Capital Markets, Montreal. "Our view is that Couche-Tard would be most interested in the Hess locations in New York, New Jersey, Pennsylvania and Massachusetts."

Other areas of Hess' footprint will be less attract to Couche-Tard, according to Howlett.

"It is less obvious to us that Couche‐Tard would be as interested in, for example, Hess' Florida and North Carolina locations," he wrote. "These are highly competitive markets with new (albeit still small) entrants such as QuikTrip, Sheetz and Wawa. Couche‐Tard already has a reasonable footprint in certain parts of these states. Our view is that assessing the fit with Hess in these states will require an extremely detailed analysis location by location."

What doesn't work for Laval, Quebec-based Couche-Tard, however, could be opportunity for other c-store retailers. Howlett wrote, "We expect a number of bidders will express interest" in the Hess properties, including Couche-Tard; Findlay, Ohio-based Marathon Petroleum; Dallas-based 7-Eleven Inc.; and Brentwood, Tenn.-based Delek US. Other analysts have speculated that Valero's CST Brands, San Antonio, could be a suitor.

Another attribute that suggests Couche-Tard may not be the best fit for the Hess properties is the perception that Hess' board of directors would like to get top dollar for the sites.

"[Press reports say] that if the bids received are not attractive enough, a spinoff to Hess shareholders will be considered. In our view, Couche‐Tard is successful because it does not overpay for assets in what we consider a very challenging industry," Howlett wrote. "Couche‐Tard is expected to be interested, but only at a price. ... The defining characteristics of Couche‐Tard are acquisition discipline and operating rigor."

New York-based Hess' network of sites consists of about 1,350 locations, of which about 1,215 have convenience stores, according to Howlett's report. About 555 of the locations include a Dunkin' Donuts offering.

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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