Analysts Weigh In on Potential Hess Suitors

LAVAL, Quebec – Since Hess Corp. announced in March it would sell off its retail division, there has been plenty of conjecture around potential buyers for the assets. Wall Street analysts have recently narrowed it down to one potential suitor: Alimentation Couche-Tard Inc.

Several reports this week predict that the Laval, Quebec-based parent company of Circle K Stores Inc. will buy Woodbridge, N.J.-based Hess’ 1,351 locations, as well as the additional 353 WilcoHess LLC convenience stores and 37 travel plazas Hess acquired last week.

Credit Suisse placed a $3.4 billion price tag on the transaction, which is approximately 8.5 times Hess’ earnings before interest, taxes, deprecation and amortization, not including potential cost savings.

Analysts believe Couche-Tard is the best suitor because the company has absorbed its 2012 acquisition of Statoil Fuel and Retail ASA and can expand its Circle K brand in the coveted Northeast U.S. market.

One thing standing in the way of such a deal is the possibility that rating agency Standard & Poor’s will lower Couche-Tard’s credit rating following the transaction. The convenience store retailer currently carries a BBB rating. However, if its debt rating is lowered, Couche-Tard will have to pay a higher interest rate to borrow money in the future, something CEO Alain Bouchard is very cautious about, the Financial Post reported.

Analysts stressed that no deal is imminent; only that Couche-Tard makes the most sense to be the acquirer.

Hess’ retail operations generate annual revenues of $13 billion, TD Securities analyst Michael Van Aelst noted.

“Couche-Tard would be the most logical buyer of the entire network, in our opinion, and we believe the [stock] market is starting to price at least modest odds of a deal into the share price,” Van Aelst told the Globe and Mail.

Alimentation Couche-Tard Inc. operates approximately 12,500 c-stores worldwide.