5/23/2014 11:10:00 AM Marathon buys convenience-store chain
Marathon Petroleum will spend $2.87 billion to acquire the retail operations of Hess, the largest chain of company operated gas stations and convenience stores on the East Coast.
The deal, which is being orchestrated under subsidiary Speedway LLC, will expand Marathon's retail operations from nine states to 23 states along the coast and in the Southeast.
Hess Corp. has been reshaping itself as a pure production and exploration company since coming under pressure from hedge fund Elliott Capital Management in 2013. It said last year it would seek a buyer for its retail operations.
Hess will use proceeds from the sale for additional stock buybacks. The company boosted its existing share repurchase authorization to $6.5 billion from $4 billion.
The deal announced Thursday consists of $2.37 billion in cash, an estimated $230 million of working capital and $274 million of capital leases. The transaction includes all of Hess' retail locations, transport operations and shipper history on various pipelines, including approximately 40,000 barrels per day on Colonial Pipeline that runs from New York to Houston.
"This acquisition will be transformative for MPC and Speedway as it will significantly expand our retail presence from nine to 23 states through these premier Hess locations throughout the East Coast and Southeast," said MPC President and Chief Executive Officer Gary R. Heminger. "Our strategy is focused on growing higher-valued, stable cash flow businesses, and this transaction fully supports that objective.
"With this significant geographic expansion, we will be able to further leverage our integrated refining and transportation logistics operations, providing an outlet for an incremental 200,000 (barrels per day) of assured sales from our refining system," Heminger said.
Marathon Petroleum Corp. is itself part of an earlier split in the energy sector in 2012, when Marathon Oil Corp. broke off its refining division so that it could focus on exploration and production.
Looking forward, Heminger said, "This acquisition represents an important step in our long-term strategy by accelerating Speedway's planned growth into contiguous markets and supporting the goal of generating $1 billion of earnings before interest, taxes, depreciation and amortization. It also underscores our commitment to balancing value-enhancing investments with continuing capital returns to shareholders."
Tony Kenney, president of Speedway, said, "This will be a significant acquisition for Speedway, as we will become the largest company-owned and -operated convenience store chain in the nation based upon revenue and the second largest by store count. We will apply our merchandise sales focus to deliver both sales and margin growth and leverage Hess' leadership in fuel sales in these markets."
Marathon brand gasoline is currently available through about 5,200 retail outlets in 18 states in the Midwest and Southeast. Marathon stations are predominantly owned and operated by independent entrepreneurs. During 2013, Marathon Brand retail outlets sold approximately 4.9 billion gallons of transportation fuels.
Speedway LLC, headquartered in Enon, Ohio, is the nation's fourth largest company-owned and -operated convenience store chain with about 1,480 stores located in nine states. Speedway is a wholly owned subsidiary of Marathon Petroleum.
Hess reassured customers that the holiday tradition of the Hess toy truck will continue. The company said that the toy trucks will be sold at Hess retail stores and online this year. Starting in 2015, Hess plans to sell the toy trucks online.
Shares of Hess gained $2.70, or 3 percent, to $92 before the market open.
The acquisition is expected to close late in the third quarter.