Valero Faces Two More Steps Before Retail Split

SAN ANTONIO -- Plans to spin off Valero Energy Corp.'s retail division into a separate company are right on track with the company facing just two more steps before the process is completed.

Speaking at a luncheon sponsored by the Association for Corporate Growth's Central Texas Chapter yesterday, Valero Chief Financial Officer Mike Ciskowski said the company is waiting on a private letter ruling from the Internal Revenue Service (IRS) that would confirm that shares in the spinoff company, CST Brands Inc., can be treated as a tax-free distribution to shareholders, according to the San Antonio Express News.

"It's just a process to go through. It just takes a long time," he said, explaining that it usually takes between four and six months to get the IRS ruling. Valero is in month five.

"Once Valero gets the private letter ruling, the only remaining hurdle will be final approval from its board of directors," added company spokesman Bill Day.

Valero has said that Kim Bowers, who is in charge of the company's retail operations, will become CEO of CST Brands when the separation is completed. The newly formed company will operate nearly 1,900 convenience stores and gas stations, including 1,032 in the United States. Its retail locations, however, are expected to maintain the Valero Corner Store banner, as CSNews Online previously reported.

CST Brands will trade under the ticker symbol CST on the New York Stock Exchange. Once approved, Valero will spin off 80 percent of CST Brands to shareholders, receiving $1.1 billion in exchange. As for the remaining 20 percent of CST Brands, Valero said it intends to sell that portion of the new company within 18 months.

"Why are we doing this? Investors and analysts have been treating Valero mainly as a refiner, and rightly so," Ciskowski said during the luncheon. However, he believes "they are ignoring the higher potential value" of the retail stores.

"We expect our retail business to trade at similar valuations to other retailers," he said, which would add about $2 billion to total shareholder value.