MONTREAL – Convenience store operator Alimentation Couche-Tard is seen as a likely bidder to purchase retail assets from oil and gas giant Hess as it seeks to further boost its U.S. network, according to an industry analyst.
Hess announced in May that it will exit its retail, energy marketing and energy trading businesses following pressure from its third-largest shareholder — activist investor Elliott Management — to break up the firm. It owns about 1,350 gasoline stations in 16 East Coast states.
Michael Van Aelst of TD Securities said it’s unclear whether Hess will sell the network to one buyer or split it into regional packages to increase the number of potential bidders.
But he said Couche-Tard (TSX:ATD.B) is “the most logical buyer” and that its shares have increased on “at least modest odds of a deal.”
The Quebec-based company recently said it has the capacity to spend $1.5 billion on acquisitions. It couldn’t be immediately reached Wednesday for comment.
Van Aelst said the Hess stores would fill the gaps in Couche-Tard’s northeast network and add density in the southeast.
Most of the locations are in Florida, North Carolina, New York, Massachusetts, Pennsylvania, South Carolina and New Jersey.
He estimates Hess’ retails assets would immediately add 34 cents per share in annual earnings and 70 cents per share within two to three years considering potential cost savings between the two networks. The result would be an immediate boost of $5 to Couche-Tard’s share price and a $10 increase to Van Aelst’s 12-month price target, which currently sits at $70.
Hess’ retail network is estimated to generate at least US$215 million in pre-tax operating earnings (EBITDA) on US$13 billion of revenues.
Its average in-store sales are comparable to Couche-Tard at $1.5 million per store, but fuel sales are believed to be 2.3 million gallons compared to Couche-Tard’s average of 1.5 million gallons.
Couche-Tard is North America’s largest convenience store operator with more than 4,500 company-operated stores, It owns some 1,600 locations in Europe through its purchase of Statoil Fuel & Retail.
Its shares hit an all-time high of $63.01 in Tuesday trading, but were down eight cents to $62.20 Wednesday morning on the Toronto Stock Exchange.