MIDLAND, Texas -- United Fuel & Energy Corp., a distributor of gasoline, diesel, propane and lubricant products to customers in the southwestern and southcentral United States, has entered into a definitive purchase agreement to acquire Cardlock Fuels System Inc., the cardlock operations of SC Fuels, a western U.S. petroleum distributor privately owned by Frank Greinke.
SC Fuels operates 23 unattended fueling facilities in Southern California and has currently issued more than 43,000 fleet fuel cards.
As consideration for [image-nocss] the acquisition, United Fuel & Energy will issue approximately 24.6 million shares of United Fuel & Energy common stock to Greinke at a price of $1.50 per share, which gives him approximately 51.5% ownership in the company.
For the unaudited trailing 12 months ending June 30, 2007, SC Fuels' cardlock operations generated approximately $200 million of revenue, $3.4 million of net income (assuming a tax rate of 44%) and $7.4 million of EBITDA.
United Fuel & Energy said it expects this transaction will result in accretion to earnings of approximately 14 cents per share on the incremental shares issued, based on trailing 12 month results. The shares will carry certain limitations on voting and selling for two years after the closing of the transaction. As part of the combination of the companies, Greinke has agreed to serve as the chairman of the board of United Fuel & Energy.
The transaction is expected to close within the next 45 days and is subject to the approval of United Fuel & Energy's board and Series A preferred shareholders and to other closing conditions, including the completion of United Fuel & Energy's previously announced restatement of certain of its historical financial statements and the satisfaction of each party with the results of its respective due diligence investigation.
Orange, Calif.-based SC Fuels was established in 1930 and purchased by the late Frank H. Greinke in 1965. The first commercial cardlock station in the United States was opened by Frank H. Greinke in 1972. Since 1989, SC Fuels has been led by Frank P. Greinke, who will be the sole owner of the newly issued United Fuel & Energy common stock, once the transaction is completed.
Chuck McArthur, United Fuel & Energy's president and CEO, said, This acquisition is a significant milestone for United Fuel because it will give us the critical mass we need to take the company to the next level of growth. By combining with SC Fuel's cardlock operations, United Fuel will expand its operations in the western U.S. and be positioned to further increase operating efficiencies due to our larger size.
He added, We expect the transaction will increase our sales volumes and revenues by over 50% and to be accretive to earnings. Under Frank Greinke's outstanding leadership, SC Fuel's cardlock operations have been exceedingly successful and will provide United Fuel a strong and profitable foothold in the California market.
Greinke has requested, and McArthur has agreed to extend his employment contract to remain as president and CEO of United Fuel & Energy for at least the next three years. Our goal is to continue to grow through a combination of organic and acquisition initiatives, with the objective of continuing to use our stock to make accretive transactions, McArthur said.
We are pleased to have this opportunity to merge SC Fuels' experience and success in the petroleum distribution business with United Fuel's expertise in the public capital markets, said Greinke. This combination of great companies gives our cardlock fuel employees the ability to participate in the future growth and dynamic consolidation expected in the fuel distribution business. We are also excited about establishing a strategic alliance between SC Fuels and United Fuel to benefit both companies and our customers.
Established in 1930 as Southern Counties Oil Co., SC Fuels is one of the oldest and largest petroleum distributors on the West Coast, the company said. Serving more than 35,000 customers annually, SC Fuels delivers commercial bulk fuels, wholesale branded fuels and alternative fuels at competitive pricing. SC Fuels also is a provider of commercial cardlocks (sold in this transaction), automated fuel purchasing and management systems used by customers in the transportation industry. It has gasoline and cardlock locations throughout Southern California and customer issued cards that can be used at 185,000 sites nationwide. The company also provides mobile onsite fueling services, directly fueling customer vehicles and equipment onsite during off-use hours.
United Fuel & Energy, Midland, Texas, is engaged in the business of distributing gasoline, diesel, propane and lubricant products primarily in certain markets of Texas, New Mexico, Arizona and Oklahoma. It represents the consolidation of several companies, the most significant of which is the Eddins-Walcher Co. United Fuel & Energy intends to continue to expand its business through strategic acquisitions and organic growth initiatives. It currently engages in cardlock operations, distribution of wholesale fuels and lubricants and distribution of propane distribution to commercial and residential users. It conducts its operations through 25 branch locations and more than 100 cardlock fuel sites.
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