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A person walks past a Couche-Tard in Montreal, Quebec, May 21, 2020.Christinne Muschi/The Globe and Mail

Alimentation Couche-Tard Inc. sees merger-and-acquisition activity picking up in the weeks ahead among convenience store players but the Canadian retail giant appears to be cooling to the idea of taking over Australian fuel supplier Ampol.

Laval, Que.-based Couche-Tard, which operates roughly 14,350 stores worldwide mostly under the Circle K banner, says deal flow in the sector is resuming after a lull in activity as companies focused on operations during the early stages of the coronavirus outbreak. Couche-Tard is eyeing acquisitions in the United States similar to the size of its Holiday Stationstores Inc. takeover in 2017 and “exploring several opportunities actively” in the Asia-Pacific, chief executive officer Brian Hannasch said on the company’s first-quarter earnings call Wednesday.

Japan’s Seven & i Holdings Co., the world’s biggest convenience-store operator, agreed last month to buy Marathon Petroleum Corp.’s Speedway chain for US$21-billion in a major bet on the U.S. market. Couche-Tard was also in the running for Speedway, a source with knowledge of the matter told The Globe and Mail, but apparently balked at the price, which values Speedway at 13.7 times earnings before taxes, depreciation and amortization. The Globe is not identifying the source as they were not authorized to speak.

“[The transaction was done] at a value that quite honestly I can’t understand,” Mr. Hannasch said on the call. For future deals, “we’ll engage and if the value is there, we’ll certainly take advantage of those opportunities,” he said.

Couche-Tard has ballooned in size from a regional convenience store chain to a global titan through acquisitions and organic growth. It hasn’t made a major acquisition since buying Texas-based CST Brands for US$4.4-billion in 2017, highlighting a disciplined approach to deal-making.

The company made a non-binding US$5.8-billion play for fuel retailer Caltex Australia Ltd., now known as Ampol, last year but suspended the effort after Ampol’s prospects and cash flow were made uncertain by the fallout of the COVID-19 pandemic. That situation hasn’t improved, raising the odds the deal is dead.

“The recent results released by Ampol were weaker than we expected and the headlines seemed to be more around financial engineering,” Mr. Hannasch said Wednesday. “It’s really hard to understand the underlying performance of their business during the COVID environment.”

Ampol last week reported a loss of 626-million Australian dollars ($599-million) as the company was hurt by a writedown on its retail division and its Lytton oil refinery. The facility has experienced persistent pressure on profit margins, “which raises questions about the near-term viability of that plant,” Mr. Hannasch said.

Retail fuel demand in Australia, which was starting to recover, is sputtering again under a second wave of COVID-19 infections and a return to lockdowns in some areas. The outlook for jet fuel remains uncertain as international travel remains at depressed levels.

Mr. Hannasch said he’s also not sure how Ampol’s in-store strategy is working in a pandemic environment. “You put all these factors [together], it’s just given us pause,” he said.

The takeover now seems to be a long shot, according to BMO Capital Markets analyst Peter Sklar. “Our sense is that Couche-Tard is not likely to proceed with an acquisition of Ampol in the near future” given Ampol’s weak financial performance and recent decision to spin off half its service station properties into a property trust, the analyst said in a note.

Mr. Hannasch steered Couche-Tard to a profit of US$777-million or 70 US cents a share for its latest quarter, helped by an increase in same-store merchandise sales of 20 per cent in Canada, 7.7 per cent in the United States and 3.4 per cent in Europe. On the fuel side, revenues declined from lower demand and lower prices for gasoline but that was offset by higher margins.

The COVID-19 pandemic has changed consumer behaviour, making the chain’s corner stores go-to destinations because of their proximity in many cases, Couche-Tard said. People are making fewer shopping trips but buying more when they go, the company said. Circle K stores are selling goods in bigger packages and expanding their offerings in protective equipment and groceries, Mr. Hannasch said.

Sales of beer and hard seltzer were particularly strong in the quarter as people drink more at home, the CEO said. Sales of lottery tickets and other betting also ticked up as people sought another outlet to gamble while casinos were closed, he said.

Couche-Tard profit grew 10 per cent to US$1.8-billion and sales increased 15 per cent to US$59.1-billion in the 2019 fiscal year ending April 28. Chairman Alain Bouchard has set a goal to double net earnings again within five years and that remains on track despite the pandemic, Mr. Hannasch said Wednesday.

One unforeseen opportunity the pandemic has brought is making more real estate available as retailers shed properties or shut down. Couche-Tard sees that as an opportunity to “accelerate in a dramatic way” its ability to open new stores that don’t sell gasoline, Mr. Hannasch said.

Shares of Couche-Tard rose 7.5 per cent to close at $46 in trading on the Toronto Stock Exchange Wednesday. They’ve gained 51 per cent since hitting a 52-week low of $30.40 in March.

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