Parkland Fuel Corp. extended its shopping spree with a $965-million deal to acquire the majority of Texas-based CST Brands Inc.'s Canadian business, including hundreds of gas stations in Quebec and Atlantic Canada.
Parkland on Monday said it had agreed to buy the assets from Laval, Que.-based Alimentation Couche-Tard Inc., which is acquiring CST in a separate $3.68-billion (U.S.) all-cash deal.
Parkland said it would issue $200-million (Canadian) in equity and tap $845-million in credit facilities to finance the transaction. The deal is conditional on Couche-Tard's purchase of CST, expected to close in early 2017, and approval from Canada's Competition Bureau.
It's the biggest acquisition yet by Parkland, one that stands to transform the Red Deer, Alta.-based company into Canada's largest independent marketer of fuel and petroleum products, with more than 1,500 retail sites across the country.
The little-known fuel distributor has binged in recent years, buying out rivals and picking up outlets from oil companies that have been stung by weak crude prices and are now eager to exit the retail business.
"It's clearly part of a strategy on their part to be a national marketer of fuels, and this pretty much cements their status as that," said Michael Ervin, senior vice-president of the London, Ont.-based Kent Group Ltd.
"For several decades the national marketers in Canada would be associated with the big oil brands such as Petro-Canada, Esso and Shell," he added. "Parkland is definitely a beneficiary of that shift away from the integration of refining and marketing."
Earlier this year, the company paid an undisclosed sum for Imperial Oil Ltd.'s On the Run/Marche Express convenience store franchise system and 17 Esso-branded gas stations in Manitoba and Saskatchewan. It also picked up Quebec propane marketer Propane Nord-Ouest, in a $22.5-million deal.
Parkland had earlier pushed into Ontario with a $378-million cash-and-share deal for Pioneer Energy. It also acquired 11 service stations in British Columbia last year from U.S. oil major Chevron Corp. for about $17-million.
Investors have pushed Parkland shares up nearly 25 per cent so far this year. The stock jumped more than 15 per cent in Monday trading on the Toronto Stock Exchange.
With the latest deal, Parkland is acquiring an additional 490 dealer locations in densely populated urban areas, including popular Ultramar-brand stations in Quebec, as well as a corporate head office in Montreal.
The company has racked up debt to fund its rapid growth. It said Monday it intends to replace a $300-million bridge financing tied to the CST deal with alternative longer-term debt before the acquisition closes.
However, its long-term debt will be at the high end of its guidance range at roughly 3.5 times earnings before interest, taxes, depreciation and amortization, according to a company presentation.
Chief executive officer Bob Espey told analysts the company now has an operating platform to expand in Quebec, whether organically or through future acquisitions.
"It really allows us to integrate those acquisitions effectively and add scale, and we would look to do that across a number of fronts," he said on a conference call Monday.
The transaction gives Parkland an additional three billion litres of annual fuel volume, a 25-per-cent increase from existing volumes of 10.3 billion litres. Also included are 72 commercial cardlock sites as well as CST's commercial and home heat businesses.
The company forecasts an increase of between $105-million and $115-million in estimated annual adjusted EBITDA before synergies.