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Thursday, December 18, 2014

Analysts Weigh In on Couche-Tard, Pantry Deal
Some question, others endorse price, overlap and potential of acquisition

Source: CSP Daily News
By Samantha Oller, Senior Editor/Special Projects Coordinator, Steve Holtz, Online News Director & Beverage Editor

LAVAL, Quebec & CARY, N.C. -- Reaction by analysts and observers to Alimentation Couche-Tard Inc.’s $1.7 billion planned acquisition of The Pantry Inc. and its Kangaroo Express convenience store chain was largely positive, with some questioning the final price tag for the highly leveraged chain.

In a media call on Thursday, execs at Couche-Tard downplayed the debt situation while highlighting the many synergies it sees with the 1,512-store chain based in Cary, N.C.

“Actually The Pantry [was] organized more financially than the operation itself,” said Alain Bouchard, founder and executive chairman of Couche-Tard, Laval, Quebec. While he acknowledged that The Pantry is highly leveraged, Bouchard said its stores are in good shape. “So for us, it’s a perfect fit.”

Couche-Tard has more than 6,200 c-stores under the Couche-Tard, Mac’s and Circle K brands in North America, as well as more than 2,200 stores in Europe.

Brian Hannasch, president and CEO of Couche-Tard, noted that acquiring The Pantry brings Couche-Tard into new markets and also provides strong fill-in opportunities in many southeastern states, such as Florida, where it has an opportunity to move to a strong No. 1 in market share with the additional sites. Other common geographies include the Carolinas, Georgia, Louisiana, Alabama and Mississippi.

“Any time we have an opportunity to acquire, we would rather fill in existing opportunities,” Hannasch said.

Debating the Overlap

It’s this strong overlap that had some analysts questioning the price for the deal, especially considering how conservative Couche-Tard has been in weighing previous acquisition opportunities such as the 1,200-store Hess retail network. Marathon Petroleum’s Speedway chain ultimately won that bid for $2.82 billion, a price that Bouchard considered too high.

Ben Brownlow, equity research analyst for Raymond James Financial, St. Petersburg, Fla., pointed to what he considered the relatively weak equity in Pantry’s Kangaroo Express brand, heavy overlap of Circle K and Kangaroo stores, and the fact that the majority of Kangaroo sites are sale-leaseback.

“I thought the valuation was a little high because you’re not really buying a strong brand in the Southeast,” Brownlow told CSP Daily News. “There’s not a ton of underlying asset ownership--the majority of the stores are leased.”

Dennis Ruben, executive managing director at NRC Realty & Capital Advisors LLC, Chicago, said adding The Pantry’s assets is a good mo