ARKO Remains Focused on 'Making Disciplined & Accretive Transactions'

RICHMOND, Va. — ARKO Corp. is on a growth trajectory. Over the last decade, the company has successfully closed 23 acquisitions, becoming one of the largest operators of convenience stores and wholesalers of fuel in the United States.

By optimizing a three-pillar in-store strategy and pursuing a robust acquisition pipeline, ARKO reported record revenue and profitability in 2022. This emphasized that at its core, the company is a c-store operator and the majority of its profits are generated in-store, Chairman, President and CEO Arie Kotler said during the company's 2022 four-quarter and yearend earnings call.

The Richmond-based company, which owns 100 percent of GPM Investments LLC, is committed to creating value for its stockholders with a systematic, convenience store-focused, long-term growth strategy, making disciplined and accretive transactions, Kotler recently told Convenience Store News.

"One of ARKO's core strengths is capital allocation, and we believe that opportunities for growth and expansion are the best use of our capital. When looking at potential acquisitions, we always think through how we can add value and identify synergies that will enhance our investment," the chief executive said. "Every acquisition has brought something new to the table, but we primarily acquire businesses that have unique histories and a longstanding presence in their communities, with a highly recognizable brand and loyal customers."

This has been the case for ARKO's most recent acquisitions:

• A deal for Quarles Petroleum Inc. included 121 proprietary Quarles-branded cardlock sites, management of 63 third-party cardlock sites for fleet fueling operations, 46 independent dealer locations including certain lessee-dealer sites, and a small transportation fleet. The addition of the fleet fueling segment provided "a very ratable cash flow that we can invest into our core c-store business," Kotler explained.
• Springfield, Mass.-based Pride Convenience Holdings LLC, operator of 31 c-stores in New England, expanded ARKO's c-store footprint into Massachusetts, making it the 34th state in which the company operates.
• A transaction for Transit Energy Group comprised approximately 135 c-stores, fuel supply to approximately 190 independent dealers, and a transportation business with 58 trucks and 78 tanker trailers that support the retail and wholesale business. The deal broadened ARKO's retail store base into Alabama and Mississippi.
• WTG Fuels Holdings LLC will expand ARKO's Southwestern footprint in key Texas and New Mexico markets. Subsidiaries of ARKO will pick up the retail, wholesale and fleet fueling assets of WTG Fuels, which owns Uncle's Convenience Stores and GASCARD fleet fueling operations. The deal is expected to close during the second quarter of this year, marking the 24th acquisition for the company.

Making a Bid for TravelCenters of America

The considerations ARKO makes when it comes to acquisitions and integrations most recently culminated in a $92-per-share proposal to purchase TravelCenters of America Inc. (TA), the nation's largest publicly traded full-service travel center network. The bid came one month after TA agreed to sell to BP Products North America Inc. in a $1.3 billion deal that calls for BP to pay roughly $86 per share in cash.

Although ARKO declined to discuss its bid for TA with CSNews, and declined to comment on whether or not the company will pursue other opportunities if the deal does not go through, here is a timeline of the engagement between ARKO and TA within the last month:

March 14: ARKO submitted an unsolicited, nonbinding indication of interest to acquire TA.

March 27: ARKO asked TA to reconsider its offer, stating that "the proposal maintains the discipline that ARKO's stockholders are accustomed to, and that is characteristic of ARKO's systematic growth strategy designed to increase cash flow and profitability."

March 28: In response, TA stood by its decision to reject ARKO's offer, stating that the "conditional, unsolicited and unfinanced proposal" from ARKO is neither superior to the $1.3 billion deal with BP, nor is it likely to lead to a superior proposal.

April 17: ARKO sent a letter to TA's board of directors saying it is "surprised and disappointed" with the board's lack of engagement with ARKO's acquisition proposal. The letter, which was signed by Kotler and General Counsel Maury Bricks and filed with the U.S. Securities and Exchange Commission, offered several points of clarification. Additionally, the company emphasized in the letter that it has reviewed TA's merger agreement with BP and is prepared to accept substantially the same, and potentially even more favorable, terms in the execution of a superior proposal.

April 24: One week later, TA responded with its intent to move forward with its sale to BP despite GPM's parent company making a case for itself as an alternate buyer. The letter cited ARKO's failure to secure committed financing as the "critical deficiency" of its proposal, noting that in order for the board to make a good-faith determination that ARKO's proposal is or could be reasonably expected to lead to a superior proposal, it would need to be confident that ARKO has sufficient funds readily available to fund the closing of the deal. "The board continues to believe that the acquisition of TA by BP is in the best interests of shareholders and maximizes shareholder value and, therefore, reiterates its recommendation that TA shareholders vote in favor of the BP transaction," the letter concluded.

April 25: ARKO followed up saying that TA limited its engagement to one call, in which advisors requested "yes" or "no" answers to questions "clearly designed to not be fully answerable on such basis, and every attempt we made to explain the sources and uses of funds in a fulsome manner was brushed aside as a waste of [the board's] time. At the end of the call, we made it very clear that we were available to more fully answer questions, make a detailed presentation to the board and discuss the transaction on a (hopefully) more reasonable timetable, and our intent was to enter into a merger with TravelCenters with a substantial premium of at least $6 per share to the value of BP's offer (an almost 7 percent premium and nearly $100 million more in value to shareholders)," ARKO wrote in its letter.

The company disagrees with TA's characterization of ARKO's ability to finance the transaction and is confident that if given access to due diligence, or had the travel center operator included ARKO in the sale process to begin with, "we would have been able to sign and close in short order without any financing contingency risk" to TA.

"As we believe that your April 24 letter was a direct assault on our commitment to consummate transactions, it is important to reiterate that ARKO is one of the most acquisitive acquirers of convenience stores and wholesalers of fuel in the United States and has completed 23 major transactions since 2013 for billions of dollars in transaction value," the company wrote. "During that time, we have increased our store count from approximately 300 to now over 3,500 sites, which we operate or to which we supply fuel.

"Furthermore and as has been publicly announced in the past 18 months, we have entered into acquisitions constituting approximately $900 million in transaction value, financed in part under our publicly disclosed program agreement with Oak Street Capital," ARKO continued. "Of those acquisitions, we have never required any financing condition and since 2013, we have closed on every acquisition for which we have gone under contract."

While it remains ready, willing and able to engage with TA, ARKO said it does not see a path where the company could conduct due diligence and complete a negotiation of a merger agreement in a timely manner in which TA could terminate its agreement with BP accordingly and enter into an agreement with ARKO.

"Your continued refusal is extremely regrettable, but please let us know if your assessment changes," ARKO's last communication concluded.

Looking Ahead

Moving forward, ARKO is focusing the remainder of 2023 on key initiatives that enhance the customer experience. Chief among them are:  

• The rollout of a new fas REWARDS loyalty app, which brings new high-value features and deals into enrolled loyalty customers' hands; and
• Expansion of the company's food offerings by introducing new prepared options, such as chicken, pizza and sandwiches, at affordable price points that will resonate with customers.

"Lastly, we will continue to grow through disciplined, accretive M&A," Kotler said.

At the close of 2022, ARKO's network included 1,404 retail sites, in addition to 1,674 wholesale sites and 183 fleet fueling sites.

ARKO operates in four reportable segments: retail, which includes convenience stores selling merchandise and fuel products to retail customers; wholesale, which supplies fuel to independent dealers and consignment agents; fleet fueling, which includes the operation of proprietary and third-party cardlock locations, and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites; and GPM Petroleum, which sells and supplies fuel to its retail and wholesale sites and charges a fixed fee, primarily to its fleet fueling sites.