Could BJ's Buy the Hess Retail Network?

Wholesale club owners making overtures for stations in play as part of divestment strategy

BJ's Hess

WESTBOROUGH, Mass. -- BJ's Wholesale Club Inc. joins Marathon Petroleum Corp. on the list of suitors that have expressed interest in buying Hess Corp.'s retail gas station network.

CVC Capital Partners Ltd. and Leonard Green & Partners LP, the private-equity owners of BJ's Wholesale Club, have expressed interest in buying Hess Corp.'s gas stations, people familiar with the matter told The Wall Street Journal.

As reported in a Raymond James/CSP Daily News Flash, the private-equity owners of Westborough, Mass.-based BJ's have enlisted bankers and inquired about the gas-station chain, which they envision pairing with its wholesale clubs.

New York City-based Hess earlier this year outlined a plan to slim down and focus on finding and extracting oil and natural gas. Divesting its more than 1,300-store retail locations is one of the last steps in that process. Hess said it is laying the groundwork for a potential spinoff of the stations, considered a more tax-friendly maneuver.

In mid-June, Hess agreed to acquire the 56% interest in Winston-Salem, N.C.-based c-store and travel plaza operator WilcoHess LLC it did not already hold from A.T. Williams Oil Co. "We believe that the agreement will enable Hess to continue its divestiture of the downstream business in a way that maximizes value for shareholders," a Hess spokesperson told CSP Daily News at the time. It ties up the Hess retail offering in a neater package, he said.

In July, it enlisted Goldman Sachs Group Inc. to sell its gas station network as the oil company moves to reshape itself into a pure exploration-and-production (E&P) company.

"We're doing a parallel process. We're going to go down the process of looking at a potential public market option … as well as go through an M&A process," CFO, principal accounting officer and senior vice president John P. Reilly said during the company's third-quarter earnings conference call. "So we're going to go through both of that, and we're going to maximize value to shareholders. As far as the private letter ruling and what we're doing for filing with the [U.S. Securities & Exchange Commission (SEC)], we're kind of on track. Everything is moving along according to schedule, and we anticipate getting that and get some further information out later this quarter and into early 2014."

BJ's operates about 200 wholesale clubs in 15 eastern states. More than half of the stores feature gas stations.

Meanwhile, Marathon Petroleum CEO Gary Heminger has suggested the Findlay, Ohio, refiner, which owns 1,470 Great Lakes region gas stations through its Speedway LLC subsidiary, is interested in the Hess retail network.

Hess has "one of the best-looking retail chains across the Eastern seaboard," he said during a conference call with investors in late October. "We'd be an excellent fit [for Hess] with Speedway. Marathon is the upper side of our business, whereas Speedway is the company-owned and operated side. So we'd be a good fit there. … It would be an excellent fit with Speedway."

The topic could be revisited during Marathon's investor day event scheduled for Wednesday in New York, said the Journal.

Hess executives, who are taking advice from Goldman Sachs Group Inc. said that they are studying spinning off the chain while also dangling it before potential suitors. "Prospective purchasers of these assets will have an opportunity to compete in terms of our company maximizing value," CEO John Hess told investors during a conference late last month. "Whatever maximizes value, we will do that."

Hess was founded by Leon Hess, the current CEO's father, in 1933 as a fuel oil distributor. The first Hess-branded gas station opened in 1960 in Oakhurst, N.J.

Hess had 1,361 stations at the end of last year, the last time the New York company gave information about the business to investors before classifying it a discontinued operation. The stations are located throughout the eastern United States, from Florida to New Hampshire, and as far west as Tennessee and Alabama. All but a few include convenience stores and nearly all are operated by Hess.