Company News

What Will CST Brands Look Like?

Upgrades, acquisitions, new construction, new markets all on tap for Valero retail spinoff

SAN ANTONIO -- Now that CST Brands Inc., San Antonio-based Valero Energy Corp.'s retail spinoff, has cleared the final hurdles in becoming a reality, what will it look like? CST Brands--debuting May 1 on the New York Stock Exchange--will be a formidable competitor in new and existing markets as it upgrades its sites, builds and acquires new stores, divests itself of underperforming units and rolls out new initiatives.

What Will CST Brands Look Like?

Valero is separating its retail business from its midstream business because it "will allow each company to pursue a more focused, industry-specific strategy; enable the management of each company to concentrate resources wholly on its particular market segments, customers and core businesses, with greater ability to anticipate and respond to changing markets and opportunities; allow each company to recruit and retain employees with expertise directly applicable to its needs; provide CST with a valuable acquisition currency; eliminate competition for capital between CST's business and Valero's other businesses and allow more direct and efficient access to capital; and provide investors in each company with a more targeted investment opportunity," the board of directors said in a filing with the U.S. Securities & Exchange Commission (SEC).

In a letter to future CST stockholders also filed with the SEC, Kimberly S. Bowers, president and CEO of CST Brands, said, "While we will be a new company upon our separation from Valero Energy Corp., our business has a history of strong financial and operating performance. ... Following the separation, we will be one of the largest independent retailers of motor fuel and convenience merchandise items in the U.S. and eastern Canada. We have nearly 1,900 retail sites."

She added, "We believe that the concentration of our retail sites in locations with strong regional economies, our efficient supply chain, the long-term agreements we will enter into with Valero for the supply of motor fuel and the diversification and unique opportunities created by our cardlock and heating oil operations provide us with a strong competitive position. Going forward, we seek to generate value by optimizing our fuel offering and pricing throughout our retail system, further enhancing our customer loyalty initiatives, continuing to expand our private-label product offerings, pursuing desirable opportunities to construct new convenience stores and updating our existing convenience stores and leveraging our supply chain in future expansions and acquisitions. We are confident that we have the quality of assets and management to execute these strategic objectives."

CST was initially formed under the name "Corner Store Holdings Inc." in November 2012 and changed its name to CST Brands Inc." in January 2013. At the time of the distribution, CST Brands will hold, through its subsidiaries, the assets and liabilities of Valero's retail business. Its headquarters will also be located in San Antonio; its website will be

As of Dec. 31, 2012, the entity that will be CST Brands had 1,032 convenience stores in nine states: Arizona, Arkansas, California, Colorado, Louisiana, New Mexico, Oklahoma, Texas (60%) and Wyoming.

It operates its convenience stores predominantly under the Corner Store name, and along with major-brand consumer products, the stores offer a proprietary line of consumable products under the Fresh Choices, U Force, Cibolo Mountain and Flavors2Go brands. The locations offer motor fuel primarily under the Valero and Diamond Shamrock brands. Of course, the company has motor fuel supply agreements with Valero; "these agreements will be based on existing volumes, but we will have the ability to seek other supply agreements for any incremental volumes we may add," it said.

The company has a U.S. distribution agreement with Core-Mark International Inc., South San Francisco, Calif.

As of that date, it had 848 retail sites, including 261 c-stores, 507 "filling stations" and 80 cardlocks, in six eastern Canada provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Quebec. It operates those stores predominantly under the Corner Store/Depanneur du Coin names, and along with major-brand consumer products, the stores offer a proprietary line of consumable products under the Transit Cafe brand. The locations offer motor fuel to retail customers primarily under the Ultramar brand. It also offers Ultramar-branded motor fuel at filling stations and cardlocks, and it supplies Ultramar-branded heating oil to residential customers and Ultramar-branded heating oil and motor fuel to small commercial customers.

The company has a distribution agreement in Canada with Sobeys Quebec Inc.

Stores in both countries offer products and services such as car wash, lottery, money orders, video and game rentals, access to ATMs and more.

Acquisition Strategy

"We plan to pursue acquisition opportunities of smaller chains (50 or fewer convenience stores) in existing and contiguous markets with overall market characteristics similar to our existing markets," CST Brands said. In Canada, "we plan to focus on expanding our dealer network, particularly in rural markets."

In the United States, "we believe there is significant opportunity to expand our business through new site construction of new-to-industry (NTI) convenience stores. As a separate company from Valero, we believe improved access to capital will allow us to accelerate our growth and better target opportunities to enter new markets. Our typical NTI convenience store incorporates an expanded branded or proprietary food offering and a car wash. We plan to focus our NTI program primarily in Texas, but we will also pursue opportunities in other strong U.S. markets."

In Canada, "we believe we will have opportunities that include a balance between redevelopment of older properties and NTI opportunities focused in growing urban centers or along major highways, including the addition of NTI cardlock locations."

Currently, Valero is a manufacturer and marketer of transportation fuels, other petrochemical products and power. Its assets include 16 petroleum refineries with a combined throughput capacity of approximately three million barrels per day, 10 ethanol plants and a 50-megawatt wind farm. Approximately 6,800 retail and branded wholesale outlets carry the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland.

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