Mergers & Acquisitions

Did Speedway Make Sale Best Option for Hess?

Many expected spinoff, but Speedway offer compelling

NEW YORK -- When Hess Corp. filed the paperwork for the spinoff of its convenience retailing arm in January, the deal would have distributed all shares in newly formed Hess Retail Corp. to holders of Hess Corp. Despite the fact that the company continued to look for buyers, Thursday's news that Marathon Petroleum's Corp.'s Speedway LLC subsidiary has acquired Hess's convenience store network for $2.87 billion still caught some off guard.

Speedway Hess (CSP Daily News / Convenience Stores / Gas Stations)

"I continued to maintain … that the spinoff scenario was more likely as it would seemingly enrich Hess shareholders the greatest, especially if you take a longer term view," said Ken Shriber, managing director with Chappaqua, N.Y.-based Petroleum Equity Group.

"Marathon's offer must have represented a significant premium over what the company may have expected to receive through the IPO market," he told CSP Daily News. "The Hess assets are considered prime; however, there are many sites with ground leases. This makes the purchase price paid a little surprising given an average of mover $2 million per location. I would also presume that the price paid reflects a multiple of EBITDA far in excess of market, also surprising."

"It does make you think about the publicly traded names that may be acquisition targets," Ben Brownlow, Atlanta-based research analyst for Raymond James, St. Petersburg, Fla., told CSP Daily News. "This all goes back to the Susser deal in 2012 when it spun off Susser Petroleum. It seems like there are newer trends towards shifting profitability between … deals."

Meanwhile, growth has always been a top priority for Speedway. It has had its eye on the perfect acquisition for some time, Angelia Graves, public and state government affairs at MPC, told CSP Daily News.

"We have been looking at growth opportunities for Speedway, and we've been building new stores in these new markets," she said. "It's just a great fit. We have the infrastructure to support it, and Speedway has the platform to grow the business."

The total Speedway store count when the deal closes at the end of the third quarter will be 2,733 company-owned stores. Tony Kenney, president of Speedway, said that it will make the retailer the largest company-owned and -operated convenience store chain in the country based upon revenue and the second largest by store count.

"Generally, because of tremendous consolidation taking place in the convenience store business, I would guess that Speedway's strategy is to fill in the gaps so they become a major player," said industry consultant Gerald Lewis. "It appears that if you're not in the 1,000-store range, well, maybe 2,000-store range, it's going to be more and more difficult to compete."

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