Why Is Buffett Betting on Truckstops?
By Greg Lindenberg on Oct. 04, 2017OMAHA, Neb., and KNOXVILLE, Tenn. -- Through a scaled investment deal with Berkshire Hathaway Inc., the Haslam family, owner of Pilot Flying J, is gradually relinquishing control of the truckstop company it has owned for decades.
Pilot Flying J is the largest operator of travel centers in North America, with more than 750 locations in 44 states and six provinces in Canada, more than $20 billion in revenues and more than 27,000 employees. It is No. 12 in CSP’s 2017 Top 202 list of the largest convenience-store chains in the United States.
What’s behind Berkshire Hathaway Chairman and CEO Warren Buffett’s investment?
Tops in truckstops
Pilot Flying J became the nation’s largest operator of truckstops and the largest seller of diesel fuel to over-the-road truckers after the merger of Pilot Travel Centers and Flying J in 2010.
Catering to professional drivers and traveling motorists across the country, the company’s travel centers offer c-stores and a wide variety of quick-service restaurants (QSRs), along with amenities such as fueling stations, showers, Wi-Fi and ATMs.
The company recently hired restaurant-industry veteran Shannon Johnson as its new vice president of food innovation. He previously was chief food-innovation officer for KFC and product-innovation director for McDonald’s. The hire fuels Pilot’s fast-casual PJ Fresh Marketplace brand.
The focus is part of the company’s $485 million five-year modernization and expansion plan.
Ownership milestones
With Berkshire Hathaway poised to take over majority ownership of PFJ, here's a look at how the chain developed:
1958: James Haslam II opened the first Pilot location in Gate City, Va.
1965: Pilot owns 12 stations in Tennessee, Kentucky and Virginia. Marathon Oil buys half of the $2-million-a-year Pilot and loans $4 million to build new locations.
1981: With 100 convenience stores and total annual sales of $175 million, Pilot opens its first travel center in Corbin, Ky.
1988: Pilot buys out Marathon Oil's one-half interest to expand into a nationwide network.
2001: Pilot joins with Marathon Ashland Petroleum to form Pilot Travel Centers, which operates 232 travel centers.
2003: Pilot acquires 50 stores from Williams Travel Centers, bringing the company's total network to 250 locations nationwide.
2008: Pilot Travel Centers buys out Marathon Petroleum's interest and adds CVC Capital Partners, a private-equity firm, as a partner. Pilot retains 52.5% ownership.
2010: Pilot Travel Centers merges with Flying J Inc. to form Pilot Flying J, combining Pilot’s more than 335 locations and Flying J's more than 215 locations for more than 550 travel centers. ConocoPhillips sells its 50% partnership interest in CFJ Properties - Flying J to Pilot Travel Centers.
2011: Completing its investment started in fall 2010, BDT Capital Partners buys into Pilot Flying J as an investment partner.
2015: Pilot purchases CVC Capital Partners' investment in Pilot Flying J.
More events
And here are some other important events:
1996: Jimmy Haslam is named CEO of Pilot Corp. Bill Haslam is named president.
1999: Bill Haslam decides to pursue other interests including public service. He becomes mayor of Knoxville, Tenn. (2003-2011), and governor of Tennessee (2011-present). Bill Haslam is reportedly considering a run for the U.S. Senate to replace Sen. Bob Corker (R) when both of their terms expire in 2018.
2012: Jimmy and Dee Haslam purchase the Cleveland Browns NFL franchise.
2013: The FBI and IRS raid Pilot Flying J's headquarters, beginning an investigation into alleged diesel-fuel-rebate fraud. Several former employees have pleaded guilty, and the company has paid a $92 million settlement. Jimmy Haslam has not been implicated.
Jimmy Haslam and Buffett said that the case cast no shadow on the deal, reported The Tennessean. Jimmy Haslam also said his ownership of the Cleveland Browns and his brother's consideration of a U.S. Senate run did not influence the sale.
Update: Bill Haslam has announced that he will not make a run for the Senate.
“While I have loved being a mayor and a governor, I don’t feel the same call to run for Senate at this point,” Haslam said in a statement. “At the end of my term, I will have been in public office for 15 years. I feel like I can be most helpful in my next service as a private citizen.”
Introductions
Byron Trott, whose firm BDT Capital Partners LLC owned a stake in Pilot Flying J, introduced Jimmy Haslam to Buffett in May, Haslam told The Wall Street Journal. Berkshire Hathaway is an investor in BDT, Buffett said. BDT exited its stake in Pilot Flying J as part of the deal, according to the report.
“We weren’t actively looking for a partner,” said Jimmy Haslam. But “the more we talked, the more we felt it made sense.”
The deal “came together pretty fast," Buffett told The Tennessean. "We like the business and we like the people, so it worked."
Details of the deal
Buffett’s Berkshire Hathaway Inc. has made a significant minority investment in Pilot Travel Centers LLC, doing business as Pilot Flying J. Berkshire Hathaway will acquire a 38.6% equity stake in the company.
The Haslam family will continue to hold a majority interest with 50.1% ownership in the company, and FJ Management Inc., owned by the Maggelet family that founded Flying J, will retain 11.3% ownership until 2023. In 2023, Berkshire Hathaway will become the majority shareholder by acquiring an additional 41.4% equity stake, and the Haslam family will retain 20% ownership in the company and will remain involved with Pilot Flying J.
Jimmy Haslam will remain as CEO. Pilot Flying J President Ken Parent and the company’s management team will also remain in place. The company will continue to be headquartered in Knoxville, Tenn.
Shaking hands on the deal
“I think it’s a tremendous opportunity for our team members. Pilot Flying J has always been a growth company, and Berkshire Hathaway as our partner can give us even more of an opportunity to grow,” said Jimmy Haslam. “Warren’s basic message to Dad (James Haslam II) and I when we went out there to shake hands with them on the deal was 'Listen, you guys have a great company. Keep running it the way you are'."
“It is not usual for us to have partners," he said. "All of our partners have added value. And we certainly think Warren and Berkshire Hathaway will add great value to Pilot Flying J.”
Keep on truckin’
Buffett, sometimes called the Oracle of Omaha for his investment acumen, offered a vote of confidence to Haslam as he takes a minority share in Pilot Flying J. “Jimmy Haslam and his team have created an industry leader and a key enabler of the nation’s economy," he said. "The company has a smart growth strategy in place and we look forward to a partnership that supports the trucking industry for years to come.”
Jimmy Haslam returned the compliment. “Given the impeccable reputation of Warren Buffett’s Berkshire Hathaway, and our shared vision and values, we decided this was an ideal opportunity,” he said. “As a family business that has evolved and prospered over the last six decades, we knew that any potential partner would need to share our commitment and have a proven track record as a long-term investor. We have that in Berkshire Hathaway—they believe in our strategy, support our team and are excited to see Pilot Flying J grow. We are honored and humbled to partner with them.”
James Haslam II said, “Berkshire Hathaway’s investment in Pilot Flying J is a testament to our exceptional team members and their dedication that has made Pilot Flying J the great company it is today. Berkshire Hathaway’s commitment to keep Pilot Flying J in Knoxville was most important to us. The Knoxville community is an integral part of our company and our family. We are committed to continuing to make a difference in Tennessee, supporting and giving back to our communities here at home.”
Berkshire Hathaway’s holdings
Omaha, Neb.-based Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services.
Industry-related subsidiary companies include:
- International Dairy Queen Inc., Minneapolis
- Kraft Heinz Co., Chicago
- McLane Co. Inc., Temple, Texas