UPDATE: "A number of media outlets have reported that Alimentation Couche-Tard Inc. is among a handful of companies rumoured to be pursuing the acquisition of a minority stake in China's Sinopec," the company said in a statement issued Tuesday night. "Couche-Tard has no plan to invest in the Sinopec placement at this time. Furthermore, should Couche-Tard have material information to communicate, it would be timely circulated through a press release disclosing the news to the market."
LAVAL, Quebec -- Despite being short-listed as a suitor to take a $16-billion stake in China's Sinopec Sales, the world's largest fuel retail network, Alimentation Couche-Tard Inc. is unlikely to consummate a deal, analysts said.
As reported in a 21st Century Smoke/CSP Daily News Flash, Laval, Quebec-based Couche-Tard is among the companies rumored to be interested in buying a minority stake in Sinopec Sales, officially known as China Petroleum & Chemical Corp, according to Reuters, citing people familiar with the matter.
State-run Sinopec plans to sell up to 30% of Sinopec Sales by year-end 2014 as Beijing restructures government-owned assets. Sinopec Sales reported a net profit of 25.1 billion yuan ($4.1 billion) in 2013 from more than 30,000 gas stations and more than 23,000 convenience stores.
The sale is expected to generate between $16 billion and $20 billion for Sinopec, money which Asia's biggest refiner may use to pay down some of its debt and to reinforce upstream investments, said the news agency.
The deal is set to value Sinopec Sales at between $53 billion and $66 billion, giving it a price-to-earnings multiple of 13 and 16.3, according to Reuters calculations.
A likely exit through an initial public offering (IPO) planned within three years has attracted a wide range of suitors, the people said. The company also wants to boost non-fuel sales and is seeking investors to get into businesses such as car services, telematics, online-to-offline sales, financial services and advertising, the sources added.
China Life Insurance, ENN Energy Holdings, Fosun Group, Hopu Investment Management and Affinity Equity Partners have also progressed to the next round, said the people who declined to be identified as the sale process is confidential.
Couche-Tard CFO Raymond Paré declined to comment on a deal. Final bids are due by the end of August.
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"I would assign a low probability for this type of transaction concluding," National Bank Financial analyst Vishal Shreedhar told The Financial Post concerning a Couche-Tard investment.
Couche-Tard has been pulled into the process by bankers keen on having an industry operator in the mix to contribute to a proper valuation for Sinopec Sales ahead of its IPO, separate market sources told the Post.
Japan-based convenience store chains Lawson Inc. and 7-Eleven Inc. parent Seven & i Holdings Co. are currently out of political favor in China, fueling the need for other participants, one analyst told the newspaper.
The Canadian company may just be testing the waters and familiarizing itself more with the deal-making process in the Asia region--an area it has said it wants to grow, the report added.
Perhaps the largest impediment to Couche-Tard finalizing a deal is that the transaction gives investors little control over Sinopec, the Post said. Couche-Tard founder and CEO Alain Bouchard is a hands-on manager who makes acquisitions based on the belief that he can introduce his company's operational efficiency to the target and improve earnings. The chain has not historically made any passive investments of this kind, the paper said.
RBC Capital Markets analyst Irene Nattel also said it doesn't make sense for Couche-Tard to purchase a stake in Sinopec Sales because of the control issue. Couche-Tard "remains active on the acquisition hunt, and as a key global player in the consolidating [convenience store] industry, we would expect management to take a close look at potential transactions of all shapes and sizes," she wrote in a note to clients cited by CBC News. "But given the capital commitment and lack of control, we believe Sinopec Sales is an unlikely candidate for [Couche-Tard]."
In September, Bouchard will take a new role as founder and executive chairman of Couche-Tard Inc., when COO Brian Hannasch will be promoted to the position of president and CEO. Bouchard will focus on acquisitions.
Couche-Tard's network includes approximately 6,250 convenience stores throughout North America, including nearly 5,000 with motor fuel dispensing. Its North American network consists of 13 business units, including nine in the United States covering 39 states and the District of Columbia (under the Circle K brand) and four in Canada (under the Mac's and Couche-Tard brands) covering all 10 provinces. In Europe, Couche-Tard operates a broad retail network across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltics (Estonia, Latvia and Lithuania) and Russia, with approximately 2,250 stores--the Statoil Fuel & Retail network it acquired in 2012. Also, under licensing agreements, about 4,600 stores are operated under the Circle K banner in 12 other countries (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, Philippines, Vietnam and United Arab Emirates), which brings to more than 13,100 the number of sites in Couche-Tard's network.
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