Couche-Tard would have two major transactions in its sights, namely the addition of the Petro-Canada network as well as the businesses of the British retailer EG.
Posted at 11:00 a.m.
By carrying out this acquisition valued at 16 billion US dollars, Couche-Tard would then lead a group with an annual turnover exceeding 70 billion dollars and some 21,000 fast food establishments, service stations and grocery stores in more from 30 countries. It would bring together EG’s network in the UK, Western Europe and Australia with Couche-Tard’s network in the US, Canada, Northern Europe and a few other countries. It was the Dow Jones Financial News Service that mentioned the Laval company’s interest in Britain’s EG on Friday.
Speculation surrounding the sale of the Petro-Canada stores – owned by Suncor – meanwhile intensified this week when a major shareholder in the Canadian oil company released a letter sent to senior management on Thursday asking for changes, including a review. strategy of activities affecting Petro-Canada.
“Couche-Tard will definitely be interested in this,” said analyst Martin Landry of the firm Stifel GMP in an interview.
In its presentation, militant Florida institutional investor Elliott Management suggests that Suncor’s retail business generates $800 million in profit before tax, interest and amortization.
“If this is the case, the acquisition price for the 1,600 Petro-Canada establishments could be around $8 to $10 billion (10 times earnings before taxes, interest and amortization),” says Martin Landry.
The analyst recalls that Couche-Tard had paid 1.7 billion for 278 sites in 2016 during the purchase of Esso stores, that is to say 6 million dollars per site. He believes that this value is the ceiling of the valuation range.
“As with any major transaction, I expect Couche-Tard to participate in a potential process involving Suncor’s retail assets, but market concentration in Canada likely prevents Couche-Tard from to make an offer for the entire network,” said RBC analyst Irene Nattel.
She points out in a research note that, according to data published by Elliott Management, this militant shareholder promises that the value of Suncor’s retail network could reach up to 12 billion.
“The possibility that Petro-Canada’s assets will be sold is real,” said BMO’s Peter Sklar. And Couche-Tard is the first buyer that comes to mind. If a transaction were to materialize, Couche-Tard’s stock would react positively due to the synergies to be generated. »
However, he notes that, in this case, the synergies are more uncertain since Petro-Canada buys its gasoline from itself, ie Suncor.
Peter Sklar also points out that valuations for convenience stores are becoming less important than they were due to rising interest rates.
Partnership needed?
“High-quality networks like Petro-Canada are rarely sold,” says Irene Nattel. I expect Couche-Tard to be very interested, but that management will apply the same financial discipline and rigor as for its past transactions. »
“With just under 300 stores in Western Canada, Couche-Tard would be well positioned to bid for the portion of stores located in Western Canada. But Couche-Tard would possibly come up against the Competition Bureau, particularly in Quebec and in certain markets in Ontario, which leads us to believe that a partner could be necessary”, specifies Irene Nattel.
Long-established networks have secured attractive sites. However, it will be necessary to see the overlap with the Couche-Tard network. And that is why it is possible to carry out a transaction in partnership so that it is attractive to Couche-Tard.
Martin Landry, from Stifel GMP
“Petro-Canada is an excellent network, in very good condition, and well established for a long time. The sites are well located,” he adds.
Although it is difficult to assess, this expert believes that Couche-Tard’s market share in the country is in the range of 15 to 20%.
“There is therefore room to increase this market share in Canada. There is the possibility of buying part of the Suncor network. Maybe it can be done in partnership with Parkland, as we saw in the past when buying the assets of CST Brands in 2016,” says Martin Landry.
“We have seen several oil companies sell off their retail assets (gas station chains). It would not be a surprise to see Suncor decide to sell its network of Petro-Canada stations,” he adds.
Peter Sklar points out that Elliott Management has used a similar approach in the past to that used with Suncor. With Marathon, for example, the approach led to the sale of Speedway properties to 7-Eleven.
Patience is on the other hand. “We are at the very beginning. There is a [investisseur militant]. Suncor is evaluating its options. Management could think for a month or two before making the decision to initiate a sales process. This sales process could take three to four months. An agreement could occur in the fall for a transaction that would be concluded during the winter,” according to Martin Landry.
“We know the quality of purchaser of Alain Bouchard, and of course of Brian Hannasch and Claude Tessier. So I think the market would view one of the two transactions (Petro-Canada and EG) favorably,” commented portfolio manager Philippe Hynes of Tonus Capital.
It was not possible to obtain a reaction from the management of Alimentation Couche-Tard.