Pilot Changes Partners

Travel Center operator forges deal with equity firm as Marathon moves on

Steve Dwyer, CSP Reporter

KNOXVILLE, Tenn. -- In a deal that carries potential growth possibilities for the chain, Pilot Corp. announced yesterday that CVC Capital Partners will acquire a sizable chunk of its Pilot Travel Center (PTC) chain, the largest network of travel centers in the United States with more than 300 locations, as original partner Marathon Oil Corp. bows out.

As reported in a CSP Daily News Flash, CVC Capital Partners, a global private-equity firm, said that it intends to acquire a 47.5% interest in PTC, with Knoxville, Tenn.-based Pilot Corp. owning the majority 52.5% of the organization. The [image-nocss] partnership calls for the formation of an "equal governance partnership" between the two entities—Pilot Corp. is wholly owned by the Haslam family. The transaction is expected to close later this month.

CVC's investment, and the new ownership structure paves the way for the sale by Findlay, Ohio-based Marathon Oil of its 50% ownership interest in PTC, which it has held since PTC was established in 2001. The cash transaction is valued at $700 million, excluding any purchase price adjustments due at closing, company spokesperson Lee Warren told CSP Daily News. The companies expect to close this transaction later this month.

As the partnership takes shape, PTC said it expects a seamless, if not unnoticeable transition period, as the current management led by CEO James A. Haslam III will continue to manage the business on a day-to-day basis.

On the rationale for selecting New York City-based CVC, with $45 billion under management, Haslam cited three reasons: "First, it will give us access to a tremendous amount of capital. Second, the folks there are very smart. And third, they have an excellent reputation both in the U.S. and around the world."

PTC operates 305 locations in 40 states and one in Ontario, Canada. More than 300 Pilot facilities feature branded foodservice, including Subway, Wendy's, Arby's, Taco Bell, Denny's and McDonald's. In addition to its travel centers, Pilot Corp. also owns and operates 37 convenience stores in Knoxville, Tenn., where it is headquartered.

In a statement, Christopher J. Stadler, managing partner of CVC's U.S. business, said, "Pilot has become the industry leader by growing organically and through acquisition. It has world-class management systems and fuel supply infrastructure, which has led to strong operating performance in all market conditions. We look forward to a long and rewarding partnership with PTC's management and the Haslam family."

Haslam added, "We believe our partnership with CVC will enable Pilot Travel Centers to remain a vibrant, growing entity and to capitalize on opportunities our industry will present over the next few years."

Representatives from both parties, when reached by CSP Daily News, would not elaborate on what the partnership will specifically yield in terms of Pilot expansion prospects; however, Stadler said in a subsequent statement provided to CSP Daily News that "the [Pilot] business has been conservatively capitalized to take advantage of growth opportunities, and we will be exploring them. The company has historically been successful in finding and integrating acquisitions."

CVC has a stake in transportation through ownership of a truck leasing business, a spokesperson said.

PTC plays an important role in U.S. transportation fuels infrastructure, supplying approximately 10% of the on-road diesel fuel consumed in the U.S. Marathon currently supplies significant volumes of motor fuels to PTC and, following the sale, the company expects to remain one of PTC's key suppliers.

"When Marathon and Pilot joined together to form PTC in 2001, we had a shared vision of creating the leading travel center network in the U.S. Through the outstanding relationship, we have realized that vision and, in the process, created substantial value for both of our companies," said Gary R. Heminger, Marathon executive vice president and president of the company 's refining, marketing and transportation operations.

Marathon 's decision to sell its interest in PTC is part of its "ongoing review" of its global asset portfolio, and "is an appropriate time to capture the value created by this partnership."

The sale brings Marathon 's announced pretax sales values, including its previously announced sale of non-core Norwegian assets, to $1.1 billion, which is "well on track to achieve our goal of $2 to $4 billion in gross proceeds by mid-year 2009," said Heminger.