CALGARY, Alberta -- Initiating a non-binding bid process that will begin in the coming weeks, Imperial Oil Ltd. said on Tuesday that it is evaluating the potential transition of its remaining company-owned Esso retail gas stations to a branded wholesaler operating model. It will also evaluate the growth opportunities for the On the Run convenience store brand.
The move prompted analyst speculation that Alimentation Couche-Tard Inc., the Laval, Quebec-based convenience store retail giant that operates Mac's and Couche-Tard stores in Canada and Circle K stores in the United States, will go after the Esso network.
In a research note, Martin Landry, director of equity research for consumer products and merchandising at GMP Securities LP, Montréal, said GMP "believes that Alimentation Couche-Tard would be interested in acquiring Imperial Oil's network of corporate stores. These Esso branded gas stations are for the most part well located and kept in very good conditions. … The number of large transactions in Canada has been quite limited in recent year, supporting our view that Couche-Tard could be interested in this strategic network."
Michael Van Aelst, managing director of research at TD Securities Inc., Toronto, said,
"Couche-Tard typically prefers company-owned and -operated sites; however, it has become more open to alternate structures in recent years, acquiring hundreds of dealer-operated (some company-owned and some dealer-owned) sites as well as the On The Run franchise system in the U.S. from Exxon."
As of Oct. 12, 2014, Couche-Tard's network included 6,303 convenience stores throughout North America, including 4,851 stores with road transportation fuel dispensing. Its North-American network consists of 13 business units, including nine in the United States (under the Circle K brand) 40 states and four in Canada (under the Mac's and Couche-Tard brands) covering all 10 provinces. It recently forged a deal to acquire The Pantry, Cary, N.C., with more than 1,500 Kangaroo Express c-stores in the Southeast.
In April 2009, Laval, Quebec-based Couche-Tard acquired the On the Run franchise system, made up of approximately 450 convenience stores, from Exxon Mobil Corp., Irving, Texas. ExxonMobil owns approximately 70% of Imperial Oil.
But analysts agree that other potential bidders for the Esso network could include CST Brands, Parkland Fuel Corp. or other smaller regional operators if Imperial Oil decides to sell the network "piecemeal," said Landry.
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And Keith Howlett, analyst with Desjardins Capital Markets, Montreal, said, "We expect Couche-Tard, CST Brands and Parkland to be interested in either all of the Esso sites or certain regional clusters of the sites. A number of private companies will, in our view, be interested in specific regional markets."
San Antonio-based CST Brands Inc. also already has a foothold. In July 2014, CST Brands and Imperial Oil forged an agreement allowing it to resell Esso-brand fuel to Canadian motorists. Their first gas station opened in Port Hope, Ontario, in December.
Through its partnership with CrossAmerica Partners, Allentown, Pa., a wholesale distributor of motor fuels and owner and lessee of real estate, CST Brands has acquired the Canastota, N.Y.-based Nice N Easy Grocery Shoppes Inc., a 77-unit chain of convenience stores in New York; Hudson, Wis.-based Erickson Oil Products Inc., which operates 64 c-stores located in Minnesota, Michigan, Wisconsin and South Dakota; and 22 Timewise c-stores in Texas from Houston-based Landmark Industries.
CST Brands is one of the largest independent retailers of motor fuels and convenience merchandise in North America. It has nearly 1,900 locations throughout the southwestern United States, New York and eastern Canada.
CrossAmerica Partners distributes fuel to more than 1,100 locations and owns or leases more than 625 sites in 16 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia and Virginia.
And Red Deer, Alberta-based Parkland Fuel already sells Esso-branded fuel.
Parkland is Canada's largest independent marketer and distributor of fuels, managing a nationwide network of sales channels for retail, commercial, wholesale and home heating fuel customers. It is a leading fuel and convenience marketer, operating approximately 800 retail fuel and convenience store businesses under the Fas Gas Plus, Race Trac Esso and Short Stop Food Store brands.
Analysts' estimates on the value of the Esso network range anywhere from $400 million to $1.4 billion.
Under the branded wholesaler operating model, Imperial supplies fuel to independent third parties who own or operate the sites in alignment with Esso brand standards.
Approximately two-thirds of Imperial Oil's 1,700 Esso-branded gas stations in Canada operate under the branded wholesaler model. The remaining 500 sites are company owned and will be part of this evaluation.
"Esso has a long, successful history as a leading retailer of high-quality fuels," said Brad Merkel, vice president of fuels and lubricants at Imperial Oil. "This evaluation will determine if strategic investments, through new business partnerships, can fuel further growth of the Esso brand in Canada."
Prospective buyers could include current or potential branded wholesalers who are aligned with Imperial Oil's intention to continue to grow the Esso brand.
"Regardless of the outcome of this evaluation, consumers will still be able to purchase the same high-quality fuel and lubricant products and can continue to expect the same superior buying experience at Esso service stations," the company said in announcing the evaluation.
Calgary, Alberta-based Imperial Oil is an integrated energy company. It is Canada's largest petroleum refiner, a major producer of crude oil and natural gas, a key petrochemical producer and a leading fuels marketer.
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