Couche-Tard Details Expanded Irving Oil Partnership

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Couche-Tard Details Expanded Irving Oil Partnership

By Don Longo

LAVAL, Quebec -- In a rare luncheon meeting with members of the Canadian media and Convenience Store News, Alimentation Couche-Tard Chairman, President and CEO Alain Bouchard, along with company executive vice president and CFO, Richard Fortin, detailed the expansion of its 7-year partnership with Irving Oil Ltd., and explained its significance to the growing company.

As reported in a CSNews Online newsflash yesterday, the two companies signed agreements Wednesday night to expand the partnership to include 252 Irving Oil c-stores across Atlantic Canada and New England. Under the agreement, Couche-Tard entered a 20-year market-value lease plus options for the stores and equipment, and will operate the stores under a Couche-Tard banner with upgraded point-of-sale and signage, while Irving Oil will continue to supply fuel to the stores, and its brand will remain on the locations' forecourts. The two companies entered the partnership in 2001 for 62 stores, and this recent expansion is "very similar," the executives stated during the meeting.

Couche-Tard expects to take over the stores in July, the executives told the media, of which CSNews was the only U.S.-based publication in attendance. One year from now, the company expects to see the same profit before taxes from these stores as it earns on a same-store basis, according to the executives. On a chainwide average, Couche-Tard stores earn $85,000 per store annually, they said. Part of what will allow Couche-Tard to see a fast return on investment is the strong staff in place at Irving Oil, which will not need to be trained, the executives explained.

The partnership is significant for Couche-Tard, for a number of reasons. First, these Irvng Oil stores put the company over the 6,000-store mark. Second, the company will reach coast-to-coast for the first time, giving it the ability to engage in national promotions, the executives said during the conference. Lastly, it provides opportunities for future growth, marking Couche-Tard's entrance into the Northeast U.S. market, which could grow into a full division eventually, centered on New York, New Jersey and Pennsylvania, the executives said.

"Couche-Tard has the strongest balance sheet in the industry," Fortin said. "If there is an acquisition out there, we can write a check."

Couche-Tard currently owns 1,300 properties it can convert to cash by selling the real estate and leasing the properties, and Fortin said the company will keep them to finance future growth as they are worth approximately $1.1 to $1.3 billion. The company is looking to buy high-quality stores with the goal of getting a 25 percent return on the capital they invest, Fortin stated.

Of the stores acquired through the partnership with Irving Oil, 128 are located in New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island. The remaining 124 sites are located in Maine, New Hampshire, Massachusetts and Vermont. Subsequent to this transaction, Couche-Tard's Eastern Canada division would include a total of 693 company-operated stores, and the Great Lakes Division would include 432 company-operated stores.

This latest transaction comes one very busy week after the fiscal year closed for the company on April 30. On Monday, the company signed agreements to bring the Circle K brand to Vietnam, while a week prior, on May 1, the company's two new U.S. divisions went into effect. With this acquisition, although a week late, the chain's expected growth in this fiscal year has been met, the executives said at the pres conference.

Going forward, the company plans to add an additional 200 to 300 stores before the end of 2008, according to the executives. In addition, Bouchard said he sees more opportunities to make similar partnerships with other oil companies both in the U.S. and Canada, as many oil companies do not want to operate convenience stores.