Germany on Couche-Tard's 'Radar'

Plans further European expansion following Statoil buy

LAVAL, Quebec -- Alimentation Couche-Tard Inc. is eyeing Germany for its next big move after it takes time to digest its $2.8-billion proposed takeover of Norwegian gas station operator Statoil Fuel & Retail ASA, reported The Montreal Gazette.

Couche-Tard studied the European market thoroughly before making its bid for SFR and concluded northern Europe would be the focus of its expansion. Snagging oil giant Statoil's gas stations and management team was the first and most attractive opportunity, sais the report.

Germany, the United Kingdom and the Benelux countries--Belgium, the Netherlands and Luxembourg--are next on the list as oil producers such as Royal Dutch Shell PLC and Exxon Mobil Corp. divest retail assets over time, said Couche-Tard CFO Raymond Pare.

"Germany is clearly on our radar and at the top of the list," Pare told the newspaper, adding the nation's market is as solid as Scandinavia. "We did assess basically almost all the networks in these countries. We know pretty well what we want and what we don't want."

Couche-Tard surprised the market Wednesday with its blockbuster bid for SFR, which would add $500 million in earnings before interest, taxes, depreciation and amortization and 2,300 service stations to its $800-million EBITDA and 5,800-store network in place as of last January.

The friendly deal is conditional on Couche-Tard winning 90 per cent of SFR's total shares outstanding (see Related Content below for previous CSP Daily News coverage).

The takeover would see Couche-Tard, which operates almost exclusively in North America under the banners Couche-Tard, Mac's and Circle K, expand overseas for the first time. The company has licensees in Asia, but it is approaching that region cautiously, saying it will take years to understand markets there.

Couche-Tard will use SFR and its leadership as a springboard for expansion on the continent. But no single deal is likely to be as large as the SFR transaction. And Couche-Tard will not proceed until its balance sheet has had time to "regain some flexibility" from the added leverage imposed by the SFR bid, Pare said.

The SFR deal comes with two curious pieces of baggage that have largely escaped the attention of investors, said the Gazette. One: Couche-Tard would inherit a unionized labor force at SFR at the same time it is trying to limit the inroads of organized labor at home in Quebec. Two: It would become the de facto owner of SFR's aviation fuel and lubricants business--assets it would likely try to sell at the earliest opportunity.

Moving into Europe in a big way "brings with it some concern" for Couche-Tard shareholders, TD Securities analyst Michael Van Aelst said in a note late Wednesday cited by the paper. Attempts by certain "eurozone" countries to rein in spending to contain their debt troubles threaten economic growth. But 88% of SFR's EBITDA comes from the "much healthier" Scandinavian market, he said, which should quell those concerns.

Desjardins Securities analyst Keith Howlett told the paper that buying SFR has the potential to add more than $7 to Couche-Tard's share price.

Couche-Tard is the leader in the Canadian c-store industry. In North America, Couche-Tard is the largest independent convenience-store operator (whether integrated with a petroleum corporation or not) in terms of number of company-operated stores. As of Jan. 29, 2012, Couche-Tard had a network of 5,817 c-stores, 4,225 of which include motor fuel dispensing. At the same date, the corporation had agreements for the supply of motor fuel to 338 sites operated by independent operators. Couche-Tard's network consists of 13 business units, including nine in the United States covering 42 states and the District of Columbia (primarily under the Circle K flag), and four in Canada covering all 10 provinces (primarily under the Mac's and Couche-Tard flags).