Arko Corp., parent company of convenience-store retailer GPM Investments, has sent a letter to TravelCenters of America’s board saying that it is “surprised and disappointed” that TA has “failed to engage at all with Arko” on the offers to acquire the travel center chain, instead proceeding with a bid from bp. Arko has now submitted an additional proposal that it said addresses the reasons why TA has dismissed Arko’s previous offers.
In mid-February, bp Products North America Inc. reached an agreement to purchase TA for $86 per share, for a total of $1.3 billion in cash.
In mid-March, Arko emerged as a rival bidder to bp to acquire TravelCenters of America at $92 per share. TA’s board rejected Arko’s unsolicited bid, saying that it “previously reviewed and determined that the conditional, unsolicited and unfinanced proposal from Arko Corp. to acquire TA is neither superior to the transaction TA previously agreed to with bp Products North America Inc., nor is it likely to lead to a superior proposal.”
The TA board cited what it called the “high level of execution risk resulting from Arko’s failure to obtain committed financing and that Arko’s sub-investment grade credit rating was not attractive to Service Properties Trust [SVC], the landlord of most of TA’s properties.”
Arko then provided additional details of its financing for the proposed acquisition and again asked TA to engage with Arko in the sale process.
TA has moved forward with bp’s bid, and on April 11, TA announced that the 30-day waiting period imposed by the Hart-Scott-Rodino Act in connection with a pending acquisition by bp expired on April 10, 2023, without action by the Federal Trade Commission (FTC). The special meeting of shareholders to approve the pending acquisition is scheduled for May 10, 2023.
Subject to shareholder approval, the company expects the transaction to close by May 15, 2023.
With $86 per share of stock committed by bp, the transaction price represents an 84% premium to TA’s average trading price of $46.68 over the 30 days ended Feb. 15, 2023, the date the companies signed the merger agreement. The total equity value of the transaction is still approximately $1.3 billion.
In a letter dated April 17, Arko said it has reviewed TA’s April 3, 2023, news release in which TA stated that its board reviewed the proposal from Arko and determined that it was not superior to bp’s nor likely to be because of issues with Arko’s financing. Arko contends it has not been allowed to address TA's concerns.
“We initially attempted to provide our more compelling superior proposal at $92 per share in cash privately and have tried several times unsuccessfully to speak with TravelCenters and its financial and legal advisors,” Arie Kotler, chairman, president and CEO of Arko, said in the letter filed with the U.S. Securities and Exchange Commission (SEC). “It is surprising that to date neither TravelCenters nor its financial and legal advisors have contacted us directly to ask any clarifying questions when it would be in the best interest of all TravelCenters’ shareholders to engage in our proposal at $92 per share in cash compared to bp’s proposal of $86 per share in cash.”
To address the potential concerns highlighted by TA’s board and to alleviate SVC’s lease concern, Arko said it will enter into a binding policy with a U.S. insurance provider with an investment-grade credit rating that is prepared to fully insure the lease payments related to TA’s obligation to SVC over the 11-year lease term at Arko’s cost.
Arko said it has had discussions with an insurance provider, “who with access to information provided to bp, would be in a position to expeditiously enter into a binding policy. SVC now has the comfort of an investment-grade counterparty for the lease term, fully alleviating any potential concerns around Arko’s credit rating. We would also reiterate Arko’s more attractive lease prepayment proposal, with $202 million of upfront lease payments (11 years) in cash compared to $188 million (10 years) offered by bp.
“Further, subject to due diligence, Arko can potentially provide even more value than $92 per share in cash to TravelCenters’ stockholders,” it said. “We are just asking for the same information to allow Arko the opportunity to do so—this is not asking the board to deem today that our proposal is superior, but that it could lead to a ‘superior proposal’ in binding documentation.”
Arko said it remains “perplexed by the board’s notion that the financing is uncommitted and conditional.” It said it has “received no clarifying questions or engaged in discussions with TravelCenters or its financial and legal advisors related to this matter.”
It added that it anticipates funding the transaction with a mix of balance sheet cash, proceeds from finance partner Oak Street and existing lines of credit available to Arko. In addition, it said, the $92 per share offer would be payable in cash, and Arko would also fund the termination fee of $51.9 million payable to bp, as specified in the merger agreement executed with bp; approximately $44 million termination fee payable to The RMR Group, which owns SVC; and approximately $90 million to SVC for brand purchase.
“Arko believes it is riskless to TravelCenters’ stockholders for TravelCenters’ board to engage with Arko, and that doing so could reasonably be expected to lead to a superior proposal including fully committed financing not subject to any conditionality,” Arko’s letter concluded. “There can be no more excuses from the board to immediately engage with Arko and provide us access to the diligence information provided to bp. We are available to meet at any time to answer questions of the board, management or your advisors so that you are in a position to validate the superiority of our proposal and so that Arko and TravelCenters can enter into a merger agreement as soon as possible.”
- BP is No. 7, GPM is No. 6 and TravelCenters of America is No. 29 on CSP’s Top 40 update to the 2022 Top 202 ranking of U.S. convenience-store chains by company-owned store count. Watch for the updated list in June.
TA, a publicly traded, full-service travel center network, has 280 locations in 44 states and Canada, principally under the TA, Petro Stopping Centers and TA Express brands. Offerings include diesel and gasoline fuel, truck maintenance and repair, full-service and quick-service restaurants, travel stores, car and truck parking and other services. The Westlake, Ohio-based company operates more than 600 full-service and quick-service restaurants and nine proprietary brands, including Iron Skillet and Country Pride.
London-based integrated oil company bp, with U.S. headquarters in Chicago, owns convenience-store brands ampm, based in La Palma, California, and Thorntons, based in Louisville, Kentucky, which it acquired in August 2021.
Richmond, Virginia-based Arko Corp. owns 100% of GPM Investments, which operates convenience-store brands include Fas Mart, Shore Stop, Scotchman, BreadBox, Young's, Li'l Cricket, Next Door Store, Village Pantry, Apple Market, Jiffi Stop, Admiral, Roadrunner Markets, Jiffy Food Marts, E-Z Mart, 1 Stop, TownStarr, ExpressStop and Handy Mart, as well as wholesale, fleet fueling and fuel supply divisions.
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