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Mergers & Acquisitions

Analysis: A Major Move in 7-Eleven vs. Circle K

Sunoco deal takes another major c-store consolidator out of the running

CHICAGO -- A year ago, CSPmulled the future of CST Brands and Sunoco LP, two convenience-store retailers tied to master limited partnerships (MLPs) through CrossAmerica Partners and Energy Transfer Equity, respectively.

At the time, both were rumored to be on shaky financial ground as MLPs—a tax-advantaged financial structure for companies selling fuel to retailers—suffered a rough year, one in which falling oil prices dragged down stock prices and investor enthusiasm for these energy-focused entities.

This week, the other shoe dropped in the two companies becoming pawns in 7-Eleven and Circle K’s game of one-upsmanship.

In August 2016, the second-largest convenience-store chain, Alimentation Couche-Tard’s Circle K, reached an agreement to buy No. 5 (in CSP’s 2016 Top 101 C-Store Chains) CST Brands, a chain that 7-Eleven also was courting, according to reports at the time. The deal, yet to close, will add more than 1,200 sites to Couche-Tard’s already healthy 6,000 or so c-stores in North America, bringing the Canadian company within about 1,000 stores of longtime channel leader 7-Eleven, which owned 8,303 c-stores as of Nov. 15, according to Technomic’s Digital Resource Library.

For many, thoughts turned to what major acquisition opportunities were left for the two chains locked in a battle for c-store supremacy.

No. 3 Speedway seemed the most likely candidate, as parent company Marathon Petroleum Corp. discussed as recently as this past January a “full and thorough” review of the retail chain to ensure that Marathon is delivering optimum value to shareholders.

But then this week 7-Eleven surprised us with its purchase of most of Sunoco LP’s (No. 6) convenience stores.

Last year, Sunoco reported a 19.6% drop in revenue, from $5.1 billion in second-quarter 2015 to $4.1 billion for second-quarter 2016, as retail fuel prices declined.

This sparked rumors that Sunoco’s parent company, Energy Transfer Equity, was considering the sale of Sunoco LP. At the time—March 2016—senior management at Sunoco emphatically denied that a sale of the retail assets was under consideration by the company.

A year later, the dealing appears to be done. The 7-Eleven-Sunoco deal includes approximately 1,110 c-stores in 19 geographic regions primarily along the East Coast and in Texas, and the associated trademarks and intellectual property of the Laredo Taco Company and Stripes. Sunoco also will sell approximately 200 c-stores in north and west Texas, New Mexico and Oklahoma in a separate process.

The result is another year of radical change coming to the largest chains in CSP's Top 202 in 2018 and a likely shock to the balance of mergers and acquisitions in the c-store industry. CST Brands and Sunoco were among the most aggressive M&A companies in the industry, along with 7-Eleven, Couche-Tard and Marathon/Speedway. With this recent deal, "The ranks of major consolidators in the convenience/gas segment in the U.S. has been reduced to three," wrote industry analyst Keith Howlett of Desjardins.

All eyes are on Speedway to see what the future holds for the c-store majors.

Click here to see the complete 2017 Top 202 list.

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