SAN ANTONIO -- Tesoro Corp.’s $5.8 billion acquisition of Western Refining Inc. will bring retail efficiencies and channel-of-trade improvements to some of the combined company’s more than 3,000 convenience stores and gas stations operating under 12 brands.
The stockholder-approved transaction, which closed on June 1, creates a geographically diversified refining, marketing and logistics company.
As reported in CSP Daily News, Tesoro will change its name to Andeavor on Aug. 1.
Some details ...
"We are excited about the continued transformation of Tesoro and our acquisition of Western represents another significant milestone in our journey," said Greg Goff, chairman and CEO. "We have evaluated ideas and opportunities to capture synergies over the last few months and are very confident in our ability to achieve our target of $350 million to $425 million in annual synergies."
The synergies include approximately $120 million to $160 million from value chain optimization, $130 million to $140 million from operational improvements and $100 million to $125 million from corporate efficiencies.
Goff will continue to serve as Tesoro’s chairman, president and CEO. Western Refining's former executive chairman, Paul Foster, and its former CEO, Jeff Stevens, will join Tesoro's board. The company’s headquarters will remain in San Antonio.
"With the integration of Tesoro and Western Refining, we are creating a strong, multi-brand marketing and convenience-store portfolio of premium and value brands with more than 3,000 locations in growing regions to better serve our customers," the company said in a statement provided to CSP Daily News. "The Western Refining retail business model is proven and effective and will further strengthen our marketing model by adding new regions and upgrading the distribution channels for our products. We do not expect any change to the retail brands in the Western Refining portfolio."
Here's how the deal will play out for the new company's retail brands ...
1. SuperAmerica refresh
Among the efficiencies and improvements, the SuperAmerica brand will get a refresh, Tesoro said.
Western Refining, El Paso, Texas, is an independent refining and marketing company. Its retail operations include approximately 550 gas stations and convenience stores in Arizona, Colorado, Minnesota, New Mexico, Texas and Wisconsin under the Giant, Howdy’s, Mustang and Sundial brands. That number also includes approximately 290 under the SuperAmerica brand in Minnesota and Wisconsin, acquired in June 2016 through a merger with Northern Tier Energy LP, Tempe, Ariz.
Tesoro did not offer details on how it will implement the brand refresh other than to say, "We constantly evaluate the brands and our assets and make investments where they are needed."
SuperAmerica has already taken steps to upgrade the brand over the past few years, reinvigorating it with fresh colors, signage, new gondolas and an expanded food program. Driving the fresh offering is the company’s SuperMom's Commissary, which provides freshly baked bread and sandwiches daily, as well as doughnuts, muffins and cookies. The company’s proprietary fountain program, Super Sipper, features a dozen heads for frozen beverages and as many as 20 heads of soda.
Woodbury, Minn.-based SuperAmerica also promotes its loyalty program, Kickback. The MySA Rewards card enables customers to save 3 cents per gallon and has other savings benefits.
2. Arco expansion
Tesoro also said it will optimize “the various marketing outlets across the combined system, including expanding Arco in the Southwest region.”
The brand currently operates in five western states: Arizona, California, Nevada, Oregon and Washington.
Tesoro is an independent refiner and marketer of petroleum products. The company’s multisite operated (MSO) retail-marketing system includes more than 2,500 gas stations and c-stores under the Arco, Shell, Exxon, Mobil, USA Gasoline, Rebel and Tesoro brands.
- Arco took the No. 2 spot in CSP’s 2017 Fuels 50: Top 10 Low Price Leaders.
BP sold the Arco brand to Tesoro for $2.5 billion in 2012, along with its Southern California refining and marketing business. BP exclusively licensed rights from Tesoro for the Arco brand in Northern California, Oregon and Washington. It retained ownership of the ampm c-store brand and franchised it to Tesoro for use in the Southwest.
When the deal was made, Goff called it “a transformative acquisition for Tesoro.”
"The combination of BP's assets with Tesoro's in Southern California creates a world-scale refining complex with an integrated marketing and logistics system," he said. "The acquisition also increases the overall size of Tesoro to just under one million barrels-a-day refining throughput capacity with almost 2,200 retail stations and an extensive logistical system."
"We will continue our growth strategy with the Arco brand in regions where it makes sense," the company told CSP Daily News. "We are early in the integration process and cannot speculate on specifics."
3. COCO vs. MSO?
Tesoro also said it will be “leveraging [the] company-owned, company-operated [COCO] model to select Tesoro geographies.”
The move amounts to a shift in strategy. Tesoro converted its company-operated gas stations and convenience stores to a MSO model at the end of 2014.
Under the MSO arrangements, where Tesoro continues to own and have the rights to revenues earned from the transportation fuels sold at these locations, Tesoro no longer operates the convenience stores, owns the related merchandise inventory or employs the store employees as the MSO operates the stations. It sells gasoline and diesel through these MSO-operated gas stations and agreements with third-party branded dealers and distributors.
"We have agreements with independent business people. … We provide the gas and the pricing for the gasoline and they run the inside operations of the store," Goff said in February 2015.
"We are early in the integration process and cannot speculate on the future; however, it is important to note that the Western Refining retail business model is proven and effective and will further strengthen our marketing model by adding new regions and upgrading the distribution channels for our products," Tesoro told CSP Daily News.