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Couche-Tard looked at European deal for years

A Couche-Tard in Bois-des-Filions, Que.

Christinne Muschi/The Globe and Mail

After losing its hostile takeover battle for Casey's General Stores, Alimentation Couche-Tard could have sat back and grumbled. But it didn't. Now, less than two years later, the company is back with a deal to acquire Statoil Fuel & Retail for $2.8-billion (U.S.) – and this time it's expanding to a different continent.

Before striking this takeover, Couche-Tard, based in Laval, Quebec, operated only North American stores. But behind the scenes the firm was desperately looking at ways to expand its geographic footprint.

"We have been looking in Europe for over five years to find the right opportunity," chief executive officer Alain Bouchard said during a press conference in Oslo on Wednesday.

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Why Europe? Couche-Tard has already saturated the North American market, especially after acquiring Circle K in 2003, and the firm's last attempt to acquire Casey's didn't go so well. Over in Europe, though, major oil companies are expected to divest their retail networks, and Couche-Tard sees some big opportunities as they are sold off.

Couche-Tard also thinks it will be able to scoop up these assets because it is an independent. "SFR was not the best position company to buy assets from Shell, BP, or Esso, because it was quite [closely]identified with being associated with Statoil," Mr. Bouchard said.

Couche-Tard is by no means overextending itself to strike the deal. With net debt at just 0.6 times earnings before interest, taxes, depreciation and amortization, and with its organic expenses under control, growing just 0.1 per cent last quarter, the firm can afford to make a play. Just last December, the firm put a $1-billion credit facility in place that was priced equivalent to an A- rating.

The question now is whether the new stores that Couche-Tard acquires will add enough profit to justify the 53 per cent premium it is paying. For the moment, earnings are growing and the financial picture looks great. However, fuel sales account for the majority of Couche-Tard's revenues, and the margins made on fuel are getting slimmer. Currently, crude oil makes up over two-thirds of the input cost of gasoline. Surely Couche-Tard understands this and would have incorporated it into its model, but no one can predict geopolitical events, such as problems with Iran.

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