CORPUS CHRISTI, Texas -- Susser Holdings Corp. said in a U.S. Securities & Exchange Commission (SEC) filing that it has set its planned initial public offering (IPO) of six million shares at an estimated price of $16 to $18 each.
Susser officials could not discuss the IPO because they are still in a quiet period, as required by law. Susser's retail operation consists of 319 convenience stores in Texas and Oklahoma, with 314 locations operating under the Circle K moniker. In the SEC filing, Susser said it plans to rebrand all of its c-stores to its [image-nocss] own Stripes brand in second-half 2006.
It also said in the filing that the underwritersMerrill Lynch & Co., JPMorgan, Jefferies & Co. and Morgan Keegan & Co.will have the option to buy an additional 900,000 shares to cover overallotments.
The company said it expects to receive $93.3 million from its sale of common stock in the IPO. It will use the funds to redeem senior notes, repay debt and for general corporate purposes, including growth capital. Assuming an offering price of $17 per share, the midpoint of the range, the company will have an initial market capitalization of $262.4 million, it said.
The Corpus Christi, Texas-based company will list its stock on the Nasdaq exchange under the symbol SUSS.
Susser appears prepared for growth. In November 2005, Susser entered into an investment agreement with Wellspring Capital Management LLC, a New York City-based private equity firm that focuses on acquiring companies where it can contribute management expertise, financial strategies and capital. At the time, Susser president and CEO Sam Susser said the private-equity firm has a long history of investing in retail and consumer companies to foster growth and expansion over the long term. Thiswill provide a tremendous platform for Susser Holdings' next stage of growth.
The company said in the filing that it would pursue acquisitions in markets contiguous to its current network. We have completed nine acquisitions in the last 17 years, adding 326 retail stores and 234 dealers. We believe this acquisition experience and our scalable infrastructure forms a strong platform for future growth through acquisitions and we plan to pursue acquisition opportunities within the highly fragmented convenience store industry. We will focus on existing and contiguous markets where demographics and overall market characteristics are similar to our existing markets. With approximately 20,000 convenience stores operating in Texas, Arkansas, Louisiana, New Mexico and Oklahoma, we believe there are significant opportunities to further penetrate our existing markets and selectively expand into new markets. This region has been under intense competitive pressure from hypermarkets and other supermarket operators, making the region ripe for continued consolidation as weaker competitors exit the business. In addition, our unique retail/wholesale business model provides us with strategic flexibility to acquire chains with both retail and dealer locations.
We believe that there is significant opportunity to continue to increase our sales and profitability through the continued implementation of our operating strategy and through growing our store base in existing and contiguous markets both organically and through strategic acquisitions. We expect to use a portion of the net proceeds from this offering as growth capital to pursue this growth strategy. Specific elements of our growth strategy include the following:
Open New Convenience Stores and Expand Our Dealer Network. Over the last seven years, since January 1999, we have opened 58 retail stores (including six single site acquisitions) and 164 new dealer locations. We intend to continue opening new stores and additional dealer locations in existing and contiguous markets.New Store Pipeline. We have identified expansion opportunities in all of our existing markets and throughout the Southwest region. We intend to open 16 to 18 new stores per year in fiscal 2006 and 2007 in our existing markets.New Dealer Pipeline. We believe there is significant opportunity to expand our dealer network. We intend to increase our wholesale distribution network by at least 25 to 35 dealers per year in fiscal 2006 and 2007, which requires minimal capital expenditures.Concerning the rebranding, meanwhile, the SEC filing said, Our royalty expense for the rights to use the Circle K banner at our stores was $3.5 million and $3.4 million, for the 12 months ended April 2, 2006, and for the fiscal year ended Jan. 1, 2006, respectively. Since we believe this expense outweighs any benefit from the Circle K licensing agreement, we do not plan to renew the agreement, it said. We expect that this conversion will require a one-time capital investment of approximately $6.5 to $7.5 million. To support our proprietary Stripes brand, we intend to increase our annual marketing expense by $800,000, which is an approximate 45% increase over what we spent during 2005.
Susser added, Over the last three years, we have replaced all of the Circle K trade dress inside our stores with our own designs and brands, including Laredo Taco Co. and Caf de la Casa, our proprietary coffee brand. We do not expect our store operations or customer traffic and spending to be adversely affected by our rebranding initiative. Our motor fuel canopies and pumps will continue to be branded with major oil company suppliers whose signage is prominently displayed at our locations.
It concluded, Our prior experience in rebranding from 7-Eleven, Tex Mart, Ice Box and Coastal to Circle K has led us to believe that location, quality and consistency of services offered are more important determinants of customer loyalty than store brand. We believe rebranding to Stripes will afford us more flexibility for future growth while enhancing our profitability. In addition, we will no longer be limited by the geographic restrictions set forth in the Circle K license agreement which limit the markets we can operate under the Circle K brand.
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