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A person walks past a Couche-Tard in Montreal on May 21, 2020.

Christinne Muschi/The Globe and Mail

Canadian convenience store giant Alimentation Couche-Tard Inc. is hunting for a partner willing to take over a major block of gas stations in the United States as it lays the groundwork to mount a multibillion-dollar takeover offer for Marathon Petroleum Corp.’s Speedway chain, according to a person with knowledge of the situation.

Laval, Que.-based Couche-Tard, owner of the Circle K banner, is engaged with Marathon in a sales process for Speedway, and other suitors, including 7-Eleven parent Seven & I Holdings, are also in the picture, the person said. Winning Speedway could cost upward of US$15-billion, dwarfing any of the Canadian company’s previous acquisitions.

To make a transaction work, Couche-Tard is looking for a buyer for an estimated 1,200 fuelling stations it would likely have to divest to buy Speedway, the person said. A sale of all the properties could fetch in the range of US$4-billion.

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Couche-Tard has about 7,300 U.S. stores in all, most of them gas stations that also sell food and drinks.

The Globe and Mail is not naming the person because they were not authorized to speak about the matter.

Striking an agreement to sell service stations near Speedway locations is chiefly about satisfying U.S. antitrust rules limiting single-ownership concentration of gas stations in specific geographies, the person said. Couche-Tard would be seeking a partner to take stores it wouldn’t be allowed to keep under those rules, much like it did in 2016 when it struck a side deal with Parkland Fuel Corp. to sell Canadian assets belonging to CST Brands Inc.

The New York Post was first to report Couche-Tard’s divestiture efforts Thursday. The retailer is looking for a buyer for its own stores that overlap with Speedway, the newspaper said. But it’s also possible it could keep those stores and divest part of Speedway. Couche-Tard can’t do an overall deal if it doesn’t have a willing partner to take overlapping stores, the person said.

Speedway and its 3,800 sites are widely considered to be a trophy asset. But its estimated price tag – Marathon announced a tax-free spinoff of Speedway at a valuation of between US$15-billion and US$18-billion in late 2019 that has since been delayed – is a big bite for Couche-Tard.

The size of a potential deal is one reason why some analysts and investors are skeptical it can be concluded.

“I’d ascribe a greater than 50-per-cent probability of Couche-Tard making a bid at this point. Whether they win or not is another story,” said Brian Madden, senior vice-president of Toronto-based Goodreid Investment Counsel Corp., which holds Couche-Tard shares among $350-million in assets under management.

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“An agreement on price is still the biggest challenge and, hence, we continue to view the likelihood as low,” Desjardins Capital Markets analyst Chris Li said in a research note Thursday.

The deal could be expensive for Couche-Tard if other bidders such as 7-Eleven make offers, Mr. Li said. Tax considerations could also raise the price hurdle for any strategic bidder if Marathon sells the stores outright, instead of spinning them off, because a straight sale would be treated as a capital gain, Mr. Madden said.

Selling 1,200 stores could allow Couche-Tard to reduce the size of any share sale it undertakes to fund the Speedway purchase. Mr. Li estimates the company’s equity funding requirement would drop in that scenario to US$1.5-billion from US$5-billion.

Couche-Tard stock climbed nearly 4 per cent to close at $45.45 on the Toronto Stock Exchange.

There would be significant overlap between Couche-Tard-owned stores and Speedway stores in certain cities, Barclays said in a recent analysis. In 79 markets, the combined entity’s share would be more than 35 per cent, it found, adding a concentration higher than 30 per cent tends to raise red flags with the U.S. Federal Trade Commission.

Couche-Tard hasn’t made a major acquisition since buying Texas-based CST Brands for US$4.4-billion in 2017. In April, the company decided to focus on its own business and suspended efforts to take over fuel retailer Caltex Australia Ltd. The fallout of the coronavirus pandemic and the rout in global oil prices had made uncertain the target’s prospects and cash flow.

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While visibility “became cloudy” on the merits of a Caltex transaction, other deals will almost certainly present themselves, Couche-Tard chief executive officer Brian Hannasch told The Globe and Mail in May. Takeover multiples, which show what an investor is willing to pay per dollar of earnings, are just one element of a convenience store sector poised for transformation in the months ahead, he said.

“We’re sitting here with a good cash position. And if there are interesting assets or companies at the right price and the timing makes sense … we’re ready,” Mr. Hannasch said.

Couche-Tard had access to US$4.7-billion in cash and credit as of the end of April, according to its financial statements.

Laurence Leroux, a spokesperson for Couche-Tard, declined to comment Thursday. Jamal Kheiry, a spokesperson for Marathon, said the company has no additional information to provide right now about its intentions for Speedway.

Ohio-based Marathon is under pressure by activist investor and billionaire Paul Singer to divest Speedway, but the oil company could also spin it off into an independent, publicly traded entity. Marathon said in a filing with the U.S. Securities and Exchange Commission last month that it “continues to assess the timeline for the Speedway separation” and that its board has not approved such a move.

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