Big-Name Bidders Reportedly Lining Up for CST

SAN ANTONIO — Marathon Petroleum’s Speedway LLC division, Alimentation Couche-Tard Inc. and Sunoco LP are all reportedly interested in an acquisition of CST Brands Inc., should the company put itself up for sale.

According to an inside source speaking to The Street.com, besides an outright sale to one of these large convenience store retailers, the odds of a CST proxy fight are also high, with the window opening to nominate board of directors in March.

This report came to light after Engine Capital LP wrote a letter to CST Brands Wednesday stating the San Antonio-based company is in a “strategic quandary” and the retailer should make several significant improvements to its business or strongly consider putting itself up for sale. New York City-based Engine Capital specifically cited CST’s stock performance compared to rivals Couche-Tard and Casey’s General Stores Inc. since its 2013 spinoff from Valero Energy Corp. as reasons for these changes.

Any retailer potentially acquiring CST would add approximately 1,900 convenience stores in the United States and Canada. This figure does not include the 170-plus stores CST recently announced it will acquire from Flash Foods Inc.

"CST has consistently lagged the better operators on the key relevant metrics. In CST’s case, it is the targets that tend to have the best-of-breed merchandising practices that CST is trying to acquire,” Engine Capital wrote in its letter. “In this consolidation phase, CST competes with entities such as Speedway (a division of Marathon Petroleum Corp.), Sunoco LP and [Alimentation] Couche-Tard. These companies are top-tier operators that significantly improve the operations of their targets and can therefore afford to pay more than CST for their acquisitions.”

Engine Capital owns approximately 1 percent of CST’s stock. Other firms with large CST stakes include Pennant Capital Management, which owns 4.6 percent of its shares, and Orange Capital, which owns 3.1 percent of the retailer’s stock. Neither of these venture capital firms have made any public statements to either support or refute Engine Capital’s claims.

CST has not yet issued an official response to Engine Capital’s letter.