Couche-Tard Expected to Bid on Hess’ Retail Assets

LAVAL, Quebec -- Consumers in the Northeast could soon become familiar with Circle K stores for the first time.

Alimentation Couche-Tard Inc. is expected to bid on Hess Corp.'s retail division, The Canadian Press reported. Laval, Quebec-based Couche-Tard already operates many U.S. stores, but does not have a large presence in the Northeast, where Hess has the highest concentration of its more than 1,300 convenience stores and gas stations.

For several months, Hess has stated its plans to spin off and/or sell its retail division in an effort to become a pure-play exploration and production company. As CSNews Online reported yesterday, Hess officially filed a Form 10 with the U.S. Securities and Exchange Commission to spin off its retail division into its own publicly traded company while seeking a sale of these assets. Hess also announced it received a letter from the Internal Revenue Service that the spinoff will be a tax-free transaction.

Couche-Tard Chief Financial Officer Raymond Paré declined comment on a potential Hess deal, but told the news outlet in an email that the company has the "financial capacity to do any transaction with our strong balance sheet."

Canaccord Genuity analyst Derek Dley told The Canadian Press that Couche-Tard could support such a deal after reducing its debt following its $3.6-billion purchase of Statoil Fuel and Retail ASA. Dley pegged a potential for Hess' retail assets to sell in the $1.5 billion range.

"When assets like this come up for sale, which isn't very often, you need to be opportunistic," Dley told the news outlet. However, he added that there will be other suitors and Couche-Tard will maintain a disciplined approach by not overpaying for the Hess retail division.

The most likely competitor for the Hess assets could be Findlay, Ohio-based Marathon Petroleum Corp., operator of Speedway LLC stores. Marathon Petroleum CEO Gary R. Heminger twice said publicly that Hess' retail division would be a "great fit" for Speedway.

"I give my hats off to [Hess CEO] John Hess," he said during Marathon Petroleum's Oct. 31 fiscal third-quarter earnings call. "He has developed one of the best-looking retail assets on the eastern seaboard." As for whether Marathon would bid on Hess' retail assets, Heminger said his company needs "to see how it plays out."

It's very likely Heminger will be questioned by financial analysts again about a potential acquisition of Hess' retail division when Marathon Petroleum discusses its 2013 fourth-quarter results during an earnings call on Jan. 29. Coincidentally, Hess will also host its fourth-quarter earnings call on the same date and at the same time (10 a.m. EST).

Laval, Quebec-based Alimentation Couche-Tard Inc. operates 6,207 North American convenience stores and gas stations.