Canadian Retail Network Could Attract Well-Known Suitors

CALGARYA, Alberta — Suncor Energy is exploring a sale of its retail business, and possible bidders are familiar names in the U.S. convenience industry.

On July 18, Suncor reached an agreement with Elliott Investment Management LP to appoint three new independent directors to Suncor's board of directors, two of whom will serve on the CEO search committee.

As part of the pact, the board will also form a committee to oversee a strategic review of Suncor's downstream retail business, Petro-Canada. Suncor and Petro-Canada merged in 2009.

With support of external advisors, this review will explore a wide range of alternatives, from a potential sale to options to enhance the value of the retail business, according to Suncor.

"The top priority for Suncor's leadership team is forging ahead with our plans to improve our safety and operating performance," said Interim CEO Kris Smith. "I look forward to working with the board, including our new directors, to advance our efforts to drive long-term shareholder value, and to communicating our progress, delivering on our debt reduction and other capital allocation targets and restoring confidence in Suncor."

Potential Buyers

With news that more than 1,500 Petro-Canada locations could hit the market, names of possible suitors began to emerge, including two Canada-based companies: Alimentation Couche-Tard Inc., the parent company of Circle K, and Parkland Corp.

According to analysts' estimates, Petro-Canada deal could carry a C$10-billion (U.S.$7.7-billion) price tag.

Laval-based Couche-Tard operates in 24 countries and territories, with more than 14,000 stores, of which approximately 10,700 offer road transportation fuel. In its fourth quarter of its fiscal year 2022 earnings call on June 30, President and CEO Brian Hannasch said the company's balance was ready for deals.

However, as a main player in the convenience and gas industry in Canada, the company could face some anticompetition hurdles.

"Couche-Tard, I think, would have a hard time buying the whole network. There would be competition issues there, concentration issues," Ryan Bushell, president of Newhaven Asset Management Inc., said on BNN Bloomberg Television.

Calgary-based Parkland has been in expansion mode lately — notably in the United States — but the deal may be out of its reach. With a stock market value of C$5.2 billion, Petro-Canada would be a "big bite," Bushell said. "I'll be interested to see if a third player, or maybe an international player, emerges."

According to Martin Landry, an analyst at Stifel GMP, large retailers like EG Group or 7-Eleven Inc.'s parent company could have some interest. Petro-Canada stations "are high quality and well-maintained and located," he said, adding that he calculates the valuation at "roughly" C$10 billion to C$14 billion.

If Couche-Tard wanted to buy the business, it would probably have to divest half of the gas stations due to antitrust issues, Landry said.

Suncor Board Changes

The three new independent directors to the Suncor board, effective immediately, are:

• Ian Ashby, former president of BHP Billiton's Iron Ore Customer Sector Group, who brings extensive global experience in surface mining, including technical and operational expertise;
• Chris Seasons, former president of Devon Canada and partner with ARC Financial Corp.; and
• Jackie Sheppard, former executive vice president, Corporate and Legal Affairs with Talisman Energy Inc.

A committee of independent directors, led by board director Russ Girling and including newly appointed directors

Seasons and Sheppard will join other independent directors, led by board director Russ Girling, to oversee the downstream retail business' strategic review and make a recommendation to the full board. The board expects to complete the strategic review in the fourth.

"We appreciate the collaborative dialogue we have had with Suncor's board and fully support the appointment of three new independent directors who will bring fresh, relevant perspectives into the boardroom, as well as the board's commitment to explore strategic options with respect to Suncor's retail business," said Elliott Partner John Pike and Portfolio Manager Mike Tomkins. "As a significant investor we look forward to continuing to work constructively with Suncor as it takes important steps to achieve best-in-class safety, improve operations and restore its industry leadership."