How Convenient! Couche-Tard Acquiring CST Brands

After pressure from activist firm Engine Capital, CST Brands (CST), a 2013 spinoff from Valero (VLO), announced in early March that it was considering its strategic options. Based on this announcement, Jim Cramer was willing to give his blessing ‘to speculate’ on the name even though it wasn’t ‘exactly what you would call cheap’. While that hardly seemed like a ringing endorsement and we poked a little fun, this recommendation ultimately worked out just a few months later.

CST will be acquired by Canada based operator Alimentation Couche-Tard (ANCUF) for $3.67b or $48.53 per share in cash. That translates into multiples of 11.24x LTM EBITDA and 0.66x LTM Revenue (Source:CapIQ). As a result of the deal, CST’s Corner Store brand will join Couche Tard’s expansive portfolio, which already includes brand names such as Couche-Tard, Kangaroo Express, Topaz, Ingo and Circle K. It will also expand Couche-Tard’s geographic presence in the US, especially in Texas and other so called ‘Sun Belt’ states. The closing date is expected sometime in early 2017, but the deal is subject to approval from CST shareholders.

The transaction is merely the latest sign of consolidation in the convenience store industry. Several other peers, including Susser Partners, Hess’ retail operations and The Pantry have been acquired over the past few years. Couche-Tard is expected to sell off some of CST’s Canadian assets as part of the deal, likely in a bid to gain regulatory approvals.

According to the WSJ, the purchase price represents a ~42% premium to CST’s price on March 3rd (the date prior to its strategic announcement). It’s also about a ~25% premium from when Cramer recommended the name. Not bad. Owners since the spinoff have done even better, but obviously not on an annualized basis.

Like so many spinoffs before it, CST now moves into the hands of the merger arb players…

Disclosure: Author holds no position in any stock mentioned.