CVC to Ditch Pilot

Private-equity firm says it will sell remaining stake in travel center company

Pilot Travel Centers

LONDON -- Saying that the move is unrelated to the fuel rebate scandal, leveraged buyout firm CVC Capital Partners told investors that it plans to sell its remaining stake in Pilot Travel Centers to the U.S. gas station operator's majority owner, leveraged buyout firm CVC Capital Partners Ltd. told investors that it plans to sell its remaining stake in Pilot Travel Centers LLC to the U.S. gas station operator's majority owner, according to a Bloomberg report.

Along with Flying J and CVC Capital Partners, Pilot is joint-owner of Knoxville, Tenn.-based Pilot Flying J Inc., the largest truckstop and travel center chain in North America, operating more than 650 retail locations.

London-based CVCmay sell its remaining 20% stake in Pilot in two stages in Jan. 2015 and June 2017 to the Haslam family's Pilot Corp., according to a filing to investors cited by the news agency.

The private-equity firm expects the stakes will be valued at about seven times Pilot's average earnings over the previous two years, people with knowledge of the matter, but who asked not to be identified because the information isn't public, told Bloomberg. Based on the company's current performance, the value of CVC's holding would be more than $2 billion, one of the people said.

CVC bought a stake in Knoxville, Tenn.-based Pilot Travel Centers in 2008 after Marathon Oil Corp. sold its stake for about $700 million. CVCthen sold about half of its shareholding to Pilot for about $1 billion in March 2011. Pilot Corp. owns about 80% of Pilot Travel Centers today and would be the sole owner of the retail network following the sale.

Anne Lezotte, a spokesperson for Pilot, told Bloomberg that there are continual discussions with CVC on its ownership, "but nothing defined."

CVC managing partner Chris Stadler told The Knoxville News Sentinel that "there have been no final decisions made between us and the Haslam family as to … how we will ultimately exit our stake."

Mitch Steenrod, CFO at Pilot Flying J, said the company talks constantly with CVC about the terms of their exit. "The framework that was described by Bloomberg was a framework we have discussed with CVC," he told the newspaper, "but there's nothing executed, there's nothing committed and, most importantly, it has nothing to do with the [rebate] situation we're managing here."

Asked about the controversy regarding diesel fuel rebates at Pilot Flying J--including the ongoing federal investigation--Stadler said that "we're comfortable that all the right things are being done to resolve it. That is not driving our decisions in any way."

The rebate controversy erupted in April, after federal officials raided Pilot Flying J's headquarters. An ongoing criminal investigation into alleged rebate fraud against trucking companies has netted seven guilty pleas. The company also was hit with multiple civil lawsuits, and reached a settlement in which it offered to fully repay any company that was shorted on fuel rebates, plus 6% interest and attorneys' fees. Some companies have opted out of that settlement, and are filing separate lawsuits against Pilot Flying J.

In 2008, Marathon Ashland Petroleum LLC sold its 50% stake in Pilot Travel Centers LLC for $700 million to Pilot Corp. at the same time that Pilot Corp. announced a separate deal to sell a 47.5% interest in Pilot Travel Centers to CVC. CVC subsequently reduced its stake in Pilot to less than 20%. A Pilot spokesperson said the Haslam family owns 59% of the company, through an entity called Pilot Corp., and that 41% is owned by "other unaffiliated third parties."

Pilot Corp. was founded by James Haslam Jr. in 1958 in Gate City, Va., when he purchased an existing gasoline station. By 1965, Pilot owned 12 stations, and was selling five million gallons of fuel yearly. Pilot built its first convenience store in 1976 and converted the rest of its locations into c-stores. In 1981, Pilot built its first travel center; 1988 saw Pilot begin its concentration on expanding its travel center network in a nationwide presence. Also in 1988, Pilot opened its first travel center with a fast food restaurant inside. In Sept. 2001, Pilot and Marathon Petroleum Co. formed Pilot Travel Centers. In July 2010, Pilot and Flying J's travel center chains merged to form Pilot Flying J.