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(Bloomberg) -- Suncor Energy Inc.’s decision to bow to investor pressure and investigate a sale of its gas stations has turned the spotlight on one potential buyer -- Quebec’s Alimentation Couche-Tard Inc.
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The acquisitive owner of the Circle K chain has been seeking a major acquisition and tried unsuccessfully to take over French grocery chain Carrefour SA last year. Suncor said Monday it will consider options for its downstream assets, which include more than 1,500 Petro-Canada locations, making it one of the country’s largest retail fuel and convenience store chains.
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Petro-Canada would be a sizable deal for most buyers, with a price tag that some analysts estimate at more than C$10 billion ($7.7 billion). For Couche-Tard, it would likely come with significant antitrust hurdles.
The Laval, Quebec-based firm manages close to 2,100 stores across Canada and about 1,200 have gas stations. There’s a lot of overlap with Petro-Canada, especially in the eastern part of the country.
“Couche-Tard, I think, would have a hard time buying the whole network. There would be competition issues there, concentration issues,” Ryan Bushell, president of Newhaven Asset Management Inc., said on BNN Bloomberg Television.
Parkland Corp., a smaller Canadian fuel retailer, has also been in acquisition mode, but with a stock market value of C$5.2 billion, Petro-Canada would be a “big bite,” Bushell said. “I’ll be interested to see if a third player, or maybe an international player, emerges.”
Suncor closed up 1.1% in Toronto on Monday after earlier rising as much as 5%. Couche-Tard dropped 1.9% while Parkland jumped 3%.
Officials from Couche-Tard and Parkland declined to comment.
Martin Landry, an analyst at Stifel GMP, believes large retailers like EG Group Ltd. or 7-Eleven Inc.’s parent could have some interest. Petro-Canada stations “are high quality and well-maintained and located,” he said, adding that he calculates the valuation at “roughly” C$10 billion to C$14 billion.
If Couche-Tard wanted to buy the business, it would probably have to divest 50% of the gas stations due to antitrust issues, according to Landry.
Credit Suisse analyst Manav Gupta pegged the value of the division at C$9.6 billion to $11.2 billion, based on an estimate it can earn C$800 million before interest, taxes, depreciation and amortization on a normalized basis.
Others questioned whether a sale in response to an activist push by Elliott Investment Management LP will generate a high price.
“Do you really need to fire sale this thing when everybody knows that you’ve aired all of your laundry?” said Rafi Tahmazian, partner and senior portfolio manager with Canoe Financial in Calgary, which continues to hold “a small position” in Suncor.
“I would want a good explanation from them on why there’s such a hate-on for an asset when it doesn’t feel like the right time to be doing that to yourself,” Tahmazian said, adding that energy markets are volatile at the moment and the company would be better off waiting for a clear direction before seeking a buyer.
“You’ve already had major gas stations sell in the last six years or so,” Eight Capital analyst Phil Skolnick said. He thinks Elliott’s estimate that the business could be worth 14 times Ebitda is too rich, given a limited pool of buyers and the potential for fuel prices to fall from current levels.
(Updates with closing share prices, Couche-Tard decline to comment, number of Couche-Tard gas stations.)
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