Alon Brands was established as a subsidiary [image-nocss] of Alon USA in November with the intent of spinning it off as a public company. Dallas-based Alon USA LP, a wholly owned subsidiary of Israel's Alon Energy, will, however, own more than 50% of the total voting power of the common shares, according to the SEC filing.
"We believe [this] is an opportunity and it creates shareholder value," Alon USA president and CRO Jeff Morris said in November. Morris, speaking with stock analysts on a quarterly earnings conference call, enumerated a couple of ways the spinoff could benefit the retail arm.
"One, we can compare how companies like Susser or Casey's or The Pantry or others are valued on a multiple basis vs. what refiners are valued. That is an apparent fact that is in the market," he said. "The other thing that we are keenly aware of is that in a company like ours, the retail division competes for capital with the refining division, and sometimes the retailers are very successful and sometimes they are not. We think it would be advantageous for this segment to have the opportunity to have access to other markets or raise capital on its own. And I believe that would help strengthen the business."
According to the filing, Alon Brands is the largest 7-Eleven licensee in the United States and the sole licensee of the FINA brand for motor fuels in the southcentral and southwestern United States.
"Our business consists of two operating segments: retail and wholesale marketing. As of June 30, 2008, our retail segment operated 306 convenience stores in Central and West Texas and New Mexico, substantially all of which are operated under the 7-Eleven and FINA brands. Through our 7-Eleven licensing agreement, we have the exclusive right to operate 7-Eleven stores in substantially all of our existing retail markets and many surrounding areas.
"Our wholesale marketing segment markets and supplies motor fuels under the FINA brand and provides brand support and payment card processing services to distributors supplying over 1,000 retail locations, including our company-owned stores that sell motor fuel."
The company's total revenues for the year ended Dec. 31, 2007, and for the six months ended June 30, 2008, were $1,274.5 million and $690.9 million, respectively. Net income (loss) for the year ended Dec. 31, 2007, and for the six months ended June 30, 2008, was $11.9 million and $(3.7) million, respectively.
As to the future, the company noted, "We believe there are significant opportunities to continue to expand our businesses and increase our sales and profitability."The filing notes the following strategies: Improve Retail Operations. Following on its separation from Alon Energy and the IPO, Alon Brands said it believes it "will be better able to invest our capital to improve our retail operations." Specifically, its plans to drive increased volumes and overall profitability by introducing new products and services, realizing the benefits of its recent fuel-equipment upgrades, optimizing its fuel pricing to improve overall retail profits and drive in-store traffic, completing selective retail store remodels and equipment upgrades, improving product positioning of higher margin, high-volume product categories and better utilizing its point-of-sale technologies. Increase Sales of Higher Margin Foodservice Products. "We believe there is a significant opportunity to increase our sales from higher margin prepared food offerings, which in turn will drive ancillary revenues from other higher margin foodservice products, such as fountain and hot-dispensed beverages," the company said in its SEC filing. "We plan to increase our foodservice sales by better leveraging 7-Eleven's foodservice program, implementing an independent hot-food program and significantly improving our beverage offerings, all of which carry higher margins than other retail products. Grow Retail Store Base. Currently at 306 stores, Alon Brands said it believes "our acquisition experience and our scalable infrastructure form a strong platform for future growth and that acquisitions of additional stores provide us the opportunity to increase our overall profitability. We expect to continue to grow our retail store base through acquisitions in markets where we are the exclusive licensee of the 7-Eleven brand." The filing does not note the proposed price for the stock, nor the number of shares the company hopes to sell. A report on Israel-based Globes Online, however, said the company expects to raise $100 million in the IPO. It also noted that Credit Suisse Securities (USA) LLC and Merrill Lynch & Co. Inc. will be the underwriters of the IPO.
Alon Brands includes retail arms Southwest Convenience Stores LLC and Skinny's LLC, as well as Alon Marketing and SCS Beverage Inc. The IPO will note likely be completed until early to mid-2009.
Click hereto view the complete SEC filing.
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