Valero Keeping Retail Decision Close to Vest
Published in CSP Daily News
Sources say sale instead of spinoff; speculation over suitor commences
SAN ANTONIO -- While the company's official position is that no decision has been made, people familiar with the matter told Reuters that Valero Energy Corp. is selling its retail business, which could fetch more than $3.5 billion at auction. In July, the company announced that it would be reviewing options regarding the retail network, including a spinoff or sale.
The prospect of a sale has attracted the interest of private-equity firms and convenience store operators, according to the news agency.
San Antonio, Texas-based Valero's retail business consists of nearly 1,000 c-stores gas stations in the United States and approximately 775 units in Canada.
The auction is at a very early stage, and it remains unclear if the U.S. and Canadian operations would be sold as a whole or separately, the people said.
"Valero announced back on July 31 that it had authorization from its board of directors to explore options for a separation of Valero's retail business from the remainder of Valero, and that Valero was reviewing several potential separation transactions, including a tax-efficient distribution of the retail business to Valero shareholders," company spokesperson Bill Day told CSP Daily News.
"That process remains under way," he said, emphasizing that "no decisions have been made, and options are still being evaluated. A sale is one possible option, but a purchase price would have to be very substantial in order to surpass the tax savings inherent in a distribution to shareholders."
As reported Thursday in Raymond James/CSP Daily News Flash, Valero, which is being advised by Credit Suisse Group on the retail strategy, has sent financial information about the unit to interested parties and expects to receive initial offers in October, those familiar with the matter told Reuters.
Several big private-equity firms, including TPG Capital LP and Carlyle Group LP, are among the parties that are taking an initial look, one of the people said. Earlier this year, Carlyle agreed to invest in Sunoco Inc.'s Philadelphia refinery, giving it a strategic vantage point on Valero's retail assets, said Reuters.
Large c-store chains such as Alimentation Couche-Tard Inc., Casey's General Stores Inc. or 7-Eleven Inc. would also likely have some interest, two other people said.
7-Eleven declined to comment to CSP Daily News on the matter.
"We're not going to be selling Twinkies and beer and cigarettes. We're going to leave that to the retail group," Valero chairman, CEO and president William Klesse said in July concerning the decision to jettison retail from the rest of the company (see Related Content below for previous coverage).
"We will still run a branded, wholesale business. So if you think of Valero then after the spin of our retail company or separation, whatever transpires, Valero's really going be a refining and wholesale marketing company," he said.
"What we are seeing here with Valero is a continuation of the trend of large and more integrated oil companies (like ConocoPhillips, Marathon and, to some extent, Sunoco) deciding to shift their focus from wholesale/retail fuels businesses to upstream and/or midstream assets (E&P, refining, pipelines and terminals)," Ken Shriber told CSP Daily News. Shriber is managing director of Chappaqua, N.Y.-based Petroleum Equity Group Ltd., which provides consulting advice and financial advisory services to terminal operators, fuel jobbers and large multi-store operators.
"This makes sense for two reasons: 1.) ROCE [return on capital employed] is far better on assets and projects further upstream from retail operations, and 2.) with the shift to a mostly jobber model in the United States (and Canada in Valero's case specifically), the larger oil companies foresee a future where focus on and control of infrastructure and throughput capacity will allow them to sustain ratable earnings growth for their shareholders."