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Mergers & Acquisitions

Couche-Tard Picks Up CST, With Caveats

‘Size matters,’ despite divesting some assets to satisfy Competition Bureau

LAVAL, Quebec, and SAN ANTONIO -- In its biggest deal ever, but one that also requires divestment of some assets, Canada-based global convenience-store retailer Alimentation Couche-Tard Inc. is acquiring U.S.-based c-store retailer CST Brands Inc. for $4.43 billion (U.S.) or approximately $4.28 billion excluding the value of CST’s equity participation in CrossAmerica Partners LP.

With this definitive merger agreement, representing the largest acquisition in the company’s 36-year history, Couche-Tard will surpass 7-Eleven Inc. as the company with the most convenience stores in the United States and Canada—approximately 9,900 for Couche-Tard and approximately 8,600 for Irving, Texas-based 7-Eleven.

“I have always thought that in our industry size matters, whether that be for purchasing, logistics, best practices or for becoming famous for our product categories,” said Alain Bouchard, founder and executive chairman of Couche-Tard. “The addition of CST’s exceptional people and its strategic assets takes us one step further towards all these goals.”

Brian Hannasch, Couche-Tard’s president and CEO, said, “CST is an excellent company and is well positioned in the southwestern United States with an important presence in Texas, Georgia, in the U.S. Southeast region, New York and Eastern Canada. ... We are excited to share best practices with CST as well as to combine the capabilities of CST’s team with Couche-Tard’s, to enhance value for our stockholders. We strongly believe that our all-cash offer is a compelling one for CST’s stockholders, giving them the opportunity to realize full and immediate value for their investment.”

The deal came out of a strategic review instigated by investors that may or may not have resulted in a sale.

“After the board’s comprehensive review of strategic alternatives to enhance stockholder value, we are pleased to reach this agreement with Couche-Tard, which we expect to provide immediate and compelling value to our stockholders,” said Kim Lubel, chairman, CEO and president of CST. “Our board believes that Couche-Tard is an ideal partner for CST. With Couche-Tard, we will build upon an extensive and attractive convenience and fuel network with enhanced scale and global reach to best position the combined company for future growth. Importantly, our employees will benefit from new opportunities for career development as part of a larger, global company.”

Competitive Issues

When completed, the acquisition will strategically strengthen Couche-Tard’s footprint in both the Sun Belt and the East Coast in the United States.

With the acquisition of CST, Couche-Tard is also gaining Allentown, Pa.-based master limited partnership (MLP) CrossAmerica Partners LP. CST controls the general partner of CrossAmerica and owns 100% of its incentive distribution rights (IDRs) and holds a significant equity investment in it. CrossAmerica distributes motor fuel to more than 1,100 locations in the United States.

While it is retaining CrossAmerica, to head off antitrust issues, Couche-Tard also has entered into an agreement with Parkland Fuel Corp., Red Deer, Alberta, to sell certain CST Canadian assets after the merger for approximately $750 million (U.S). Those assets would include CST’s cardlock business (72 sites), CST’s dealer and commission agent business (490 sites), CST’s commercial and home energy business, a number of company-operated stores to be determined following the Competition Bureau of Canada’s review of the transaction and CST’s Montreal corporate head office.

As reported in a McLane/CSP Daily News Flash, the all-cash transaction represents $48.53 per share. The transaction price, which includes net debt assumed, represents a premium of 42% to CST’s closing share price on March 3, 2016, the last trading day prior to CST announcing that it would explore and review its strategic alternatives to further enhance its stockholder value.

Couche-Tard said it expects to finance the transaction with available cash, existing credit facilities and a new term loan.

Couche-Tard intends to use the proceeds from this sale to repay part of its credit facilities.

The boards of both companies have approved the agreement unanimously. The companies said they expect the deal to close in early calendar year 2017; it is subject to the approval of CST’s stockholders and regulatory approvals in the United States and Canada.

Upon completion of the transaction, Couche-Tard will establish a new business unit in San Antonio with attached shared-services operations.

CST is based in San Antonio and has more than 2,000 locations throughout the Southwest United States with a presence in Texas, Georgia, the U.S. Southeast, New York and eastern Canada.

CST also controls the general partner of Allentown, Pa.-based CrossAmerica Partners LP, owns 100% of its Incentive Distribution Rights and holds a significant equity investment in it. CrossAmerica distributes branded and unbranded road transportation fuel to more than 1,100 locations in the United States.

As of April 24, Laval, Quebec-based Couche-Tard’s network comprised 7,888 convenience stores throughout North America, including 6,490 stores with motor fuel. They operate mostly under the Circle K and Kangaroo Express (The Pantry) brands, as well as Mac's and Couche-Tard. The company is rebranding most of the stores to a new Circle K brand. Its North American network consists of 15 business units, including 11 in the United States covering 41 states and four in Canada covering all 10 provinces.

In Europe, Couche-Tard operates a broad retail network across Scandinavia, Ireland, Poland, the Baltics States and Russia. In addition, under licensing agreements, almost 1,500 stores are operated under the Circle K banner in 13 other countries and territories worldwide (China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Macau, Malaysia, Mexico, the Philippines, the United Arab Emirates and Vietnam), which brings the total network to more than 12,000 stores.

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