CORPUS CHRISTI, Texas -- It took eight years and $361 million, but Susser Holdings Corp. has finally won the hand of Town & Country Food Stores.
This past Friday, Susser announcedas reported in a CSP Daily News Flashthat it had signed a definitive agreement to acquire the San Angelo, Texas-based parent company of Town & Country, including 168 stores in Texas and New Mexico, as well as 14 undeveloped land tracks, for $361 million in cash.
This is our largest acquisition ever in terms of dollars and store count, said Sam [image-nocss] Susser, president and CEO of Susser Holdings, during an investor conference call. It's a great company, and this transaction should provide a strong catalyst for future growth. We believe this combination has the potential to significantly enhance shareholder value by expanding our footprint, adding geographic diversity and providing additional fill-in growth opportunities.
With Town & Country in the fold, Susser's retail store count will leap 51% to reach nearly 500 locations, and its footprint will spread beyond the Rio Grande Valley and Texas-New Mexico border to include west Texas and eastern New Mexico. Town & Country's retail portfolio includes 161 c-stores, which will all be rebranded to Susser's Stripes brand beginning in fall 2008. Seven Village Marketsa 7,000- to 17,000-square-foot small-grocery conceptwill keep their original branding.
Even with this impressive stable, Susser sees additional room for growth across its new markets.
Town & Country has 14 land tracks to feed that expansion, and we think there are additional in-fill opportunities beyond those locations, said Chip Bonner, Susser executive vice president and general counsel. Given the size and scale, we'll have greater capital resources than Town & Country has had alone to pursue those opportunities more quickly and aggressively. The company plans to build 12 to 22 new retail sites in 2008 and establish the infrastructure to support 20 to 30 new sites in 2009.
What's striking about the Susser/Town & Country merger is the similarity between the two companies, Dean Haskell, senior vice president of equity research with New York investment bank Morgan Joseph, told CSP Daily News.
I think the fact that if fits their model is unique and it's a pretty significant acquisition, he said, pointing to similarities in company cultures, customer demographics and contiguous geographies. Susser and Town & Country are long-time benchmarking partners, meaning their stores already have a similar look and feel.
Because the geography of these two brands is analogous, they do have similar operating techniques, said Haskell. For example, if they were to buy strictly a Dallas brand, you would see a very different retail mix, a different strategy in terms of marketing. Here you've got the opportunity to put not a clone per se, but a very well operated, similar company into your organization.
Town & Country also gives Susser greater buying scale and purchasing power for merchandising and fuel. Indeed, with San Antonio-based Valero Corp. as a supplier to both Susser and Town & Country, the refiner stands to benefit from the deal as well.
In terms of the $361 million purchase priceor 7.2 times LTM EBITDAHaskell said at first glance, it may appear a large number. On the cover of it, it looks like an excessive multiple, but there's a significant amount of real estate involved, and that's a good thing, he said.
In fact, Town & Country owns 80% of its real estate, as well as the 14 land tracks, worth an estimated $260 million.
The clear benefits of the acquisition make the long run-up to the deal even more amazing. The acquisition was not open to bidding.
We've had our eye on Town & Country for a long time; in fact, we first started talking to them more than eight years ago. So even though this took quite a while to bring to fruition, it's certainly worth the wait, said Susser. Thanks to the strong leadership and stewardship of Alvin New, Town & Country's president and CEO, and that of his colleagues, Town & Country is very profitable, very well run and puts Susser into new markets where we very much want to be.
Why now after 8 years of courtship? Town & Country and Susser did not return calls for comment by press time, but Haskell notes it's largely a matter of timing. Really what it boils down to is transactions happen when both parties are ready for them to happen, he said. There's usually only one reason to buy: you think things are going to be positive, you think things are going to go up. But there's a myriad of reasons to be a seller.
New will continue to lead Town & Country as part of Susser's executive management team; Susser Holdings expects to consolidate positions in information technology, finance and shared services.
In a press release, New stated, Susser Holdings in a fine company that we've respected for years. While their offer was unsolicited, it was compelling because of the value it will bring to our shareholders and the additional access to capital we will have to accelerate growth.
Although Susser is slapping on the Stripes banner to its new retail assets, it plans to keep Town & Country's Country Cookin' foodservice brand, integrating it with offers from Susser's own Laredo Taco Co. program.
In connection with this transaction, Merrill Lynch & Co. acted as exclusive financial advisor to Susser and rendered a fairness opinion to its board. Morgan Keegan & Co., Trefethen & Co. and Houlihan Lokey Howard & Zukin acted as financial advisors to the parent company of Town & Country. Weil, Gotshal & Manges LLP acted as outside legal counsel to Susser, and Haynes & Boone LLP acted as outside legal counsel to the parent company of Town & Country. Bank of America, Merrill Lynch & Co., Wachovia Securities and BMO Capital Markets have provided commitments for the debt portion of the financing for the transaction, which are subject to customary conditions.
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