• On August 22nd, 2016 CST Brands, Inc. (CST) announced that its Board of Directors approved a merger agreement with Alimentation Couche-Tard (ACT) under which Couche-Tard will acquire all the shares of CST for a total enterprise value of approximately $4.4 billion.
  • VogelHood believes that the ACT/CST merger will receive receive regulatory approval, with conditions.
  • Analysis shows that ACT/CST, considered a Level 2 transaction, according to our internal analysis, will allow ACT to dominate the competitive landscape among independently owned convenience stores, gas stations, etc, due to the acquisition of stores under the scope of CST’s company.

Divestiture Analysis: Alimentation Couche-Tard (ACT) and CST Brands (CST)

  • VogelHood examined the ACT/CST transaction from two angles: (1) their store overlap in similar and competitive markets (2) Various stores that fall into the same category and their residence in the competitive markets.
  • To examine Couche-Tard and CST’s post-merger location density, VogelHood made the following assumptions:
    1. The variety of competitors in the convenience store market depends upon the state and the company’s presence in the overall region.
    2. The number of stores is positively correlated with the revenues. As the number of stores increase, the total revenue increases as well.
    3. The companies disclosed various numbers of stores based upon both region and state. In correlating them, VogelHood assessed the regions in the same way as claimed by ACT.
    4. VogelHood assumed the entirety of the convenience store/gas station industry across the country in order to assess where ACT would become the dominate presence.

Market Overlap

  • VogelHood identified 41 states in which ACT operates. 26 of these states were held in common with CST’s operations. Those include: Arizona, Arkansas, California, Colorado, Delaware, Florida, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Ohio, Oklahoma, Tennessee, Texas, Virginia, West Virginia, Wisconsin
  • In the case of the completion of the transaction, ACT would stand to gain an increase of 2,000 stores that were previously in competition with their reported 6,000 stores, a 33% increase in their hold on the competitive landscape.
  • If the number of convenience stores was taken as a given, and averaged across states. by the end of the merger, ACT would stand to control 48% of the competitive landscape in the Southwest Region, which they stated was the region they were most looking to expand to. In addition, they would hold 38% in the Great Lakes Region, and 29% of the Gulf Region.

* The Regions are identified as those stated below in the store count, according to ACT.

Store Count:

Alimentation Couche Tard (Acquirer): Couche-Tard is the leader in the Canadian convenience store industry. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. Approximately 80,000 people are employed through its network and at its service offices in North America. The $4.4 billion deal with CST will put Couche-Tard on par with the top companies in its sector, including 7-Eleven.

  • West Coast Region (California, Hawaii, Oregon, Washington):
    • Corporate Stores: 237
    • CODO: 81
    • DODO: 237
    • Affiliated Stores: 289
  • Midwest Region (Indiana, Kentucky, Ohio):
    • Corporate Stores: 323
    • CODO: 5
    • DODO: 63
    • Affiliated Stores: 37
  • South Atlantic Region (North Carolina, South Carolina, Virginia):
    • Corporate Stores: 456
    • CODO: 2
    • DODO: 21
    • Affiliated Stores: 22
  • Arizona Region (Arizona, Nevada): 
    • Corporate Stores: 608
    • Affiliated Stores: 2
  • Great Lakes Region (Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Vermont, West Virginia):
    • Corporate Stores: 462
    • Affiliated Stores: 99
  • Florida Region (Florida):
    • Corporate Stores: 721
    • CODO: 11
    • DODO: 50
    • Affiliated Stores: 68
  • Southwest Region (Colorado, Kansas, Missouri, New Mexico, Oklahoma, Texas):
    • Corporate Stores: 350
    • CODO: 2
    • DODO: 83
    • Affiliated Stores: 55
  • Gulf Region (Alabama, Arkansas, Louisiana, Mississippi, Florida Panhandle, Tennessee):
    • Corporate Stores: 581
    • CODO: 1
    • DODO: 51
    • Affiliated Stores: 44
  • Heartland Region (Illinois, Iowa, Minnesota, Missouri, Wisconsin):
    • Corporate Stores: 338
    • CODO: 24
    • DODO: 33
    • Affiliated Stores: 23
  • Southeast Region (Georgia, North Carolina, South Carolina, Tennessee):
    • Corporate Stores: 551
    • CODO: 4
    • DODO: 14
    • Affiliated Stores: 30

CODO: Sites for which the real estate is controlled by Couche-Tard (through ownership or lease agreements) and for which the stores (and/or the service-stations) are operated by an independent operator in exchange for rent and to which Couche-Tard supplies road transportation fuel though supply contracts. Some of these sites are subject to a franchise agreement, licensing or other similar agreement under one of our main or secondary banners.

DODO: Sites controlled and operated by independent operators to which Couche-Tard supplies road transportation fuel through supply contracts. Some of these sites are subject to a franchise agreement, licensing or other similar agreement under one of our main or secondary banners.

CST (Target): A Fortune 500 company, CST is one of the largest retailers of motor fuels and convenience merchandise in North America. They employ over 14,000 at 2,000 locations in North America. Under the terms of the agreement, CST stockholders will receive $48.53 in cash per share, without interest, at the closing of the transaction. 

As of March 1st, 2015, CST operated in these states:

  • Arizona: 62
  • Arkansas: 27
  • California: 79
  • Colorado: 138
  • Delaware: 1
  • Florida: 46
  • Illinois: 3
  • Indiana: 8
  • Kentucky: 7
  • Maine: 8
  • Maryland: 1
  • Massachusetts: 70
  • Michigan: 3
  • Minnesota: 41
  • New Hampshire: 21
  • New Jersey: 107
  • New Mexico: 38
  • New York: 32
  • Ohio: 76
  • Oklahoma: 2
  • Pennsylvania: 131
  • South Dakota: 8
  • Tennessee: 50
  • Texas: 634
  • Virginia: 83
  • West Virginia: 14
  • Wisconsin: 12
  • Wyoming: 3

Regional Analysis: 

Below is a table that shows the spread of corporate stores compared by region from both ACT and CST. This helps to demonstrate where ACT is clearly dominate in the industry, but also where they stand to gain the most, in terms of dominating the industry, with the merger.

Screen Shot 2017-06-05 at 11.26.37 AM

ACT has stated that they are looking to expand their market deeper in the state of Texas. The Southwest Region is where there is a clear dominance of CST stores as compared to ACT stores. CST’s stores in the Southwest Region are mainly centered in Texas – 634 out of the 812 CST stores in the region are in Texas alone. Merging with CST and integrating their stores into ACT’s corporate body is an ideal way to expand ACT’s market without increased costs from construction and real estate. Overall, ACT dominates the convenience store market as compared to CST, excepting the Great Lakes Region, where they are almost exactly even in terms of number of stores, and the Southwest Region, where CST clearly dominates due to its presence in Texas.

Screen Shot 2017-06-05 at 11.51.51 AM

Sourced from Alimentation Couche-Tard’s corporate website

Screen Shot 2017-06-05 at 11.53.40 AM

Sourced from CST’s corporate website

Screen Shot 2016-08-10 at 3.02.46 PMSamir N. Kapadia
Managing Director, VogelHood Group
Madison Johnson 
Summer Analyst, VogelHood Group

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