Valero Nears Completion of C-Store Spinoff Process

Published in CSP Daily News

Waiting on IRS, final board OK before CST Brands separation becomes official

Mike Ciskowski

SAN ANTONIO -- Valero Energy Corp.'s planned s pinoff of its retail stores remains on track to occur during the second quarter, Valero vice president and CFO Mike Ciskowski said at a Tuesday luncheon sponsored by the Association for Corporate Growth's Central Texas chapter in San Antonio.

He said that Valero is waiting on a "private-letter ruling" from the Internal Revenue Service (IRS) that would confirm that shares in the spinoff company, called CST Brands Inc., can be treated as a tax-free distribution to shareholders, according to a report by The San Antonio Express-News.

Typically, it takes four to six months to get a private-letter ruling from the IRS, "and we're in month five," he said.

Company spokesperson Bill Day told the newspaper that, should the company receive the letter from the IRS, the only remaining hurdle to the retail separation is final approval from Valero's board.

In February, CST Brands, formally known as Corner Store Holdings Inc., filed an amended registration statement with the U.S. Securities & Exchange Commission (SEC). The company's plan is to distribute 80% of the shares in CST Brands to Valero shareholders, and Valero will receive approximately $1.1 billion in cash and incur a tax liability of approximately $300 million primarily in Canada. It expects to liquidate the remaining 20% of CST Brands outstanding shares within 18 months of the distribution.

"Investors and analysts have been treating Valero mainly as a refiner, and rightly so," Ciskowski told attendees at the luncheon. But in doing so, "they are ignoring the higher potential value" of the retail stores.

"We expect our retail business to trade at similar valuations to other retailers," he said, which would add about $2 billion to total shareholder value.

CST Brands will be the second largest publicly traded independent retailer of fuel and convenience merchandise in North America with nearly 1,900 sites, located in geographically diverse regions--the southwestern United States and Eastern Canada. Many of the more than 1,000 U.S. retail sites are in Texas and surrounding states, which have strong economic growth. CST Brands has substantial ownership of the sites with approximately 60% owned and not leased. It has a long history of strong financial performance in brand recognition. And CST Brands has significant growth opportunities in merchandise, foodservice and new-build locations, the company has said.

It is to be a San Antonio-based company that will trade on the New York Stock Exchange (NYSE) as CST, the report said.

The company announced in December that Kim Bowers, executive vice president and general counsel, would be responsible as of Jan. 1 for the company's retail organization in the United States and Canada as executive vice president and president of retail and will remain with CST Brands when it separates from Valero.

San Antonio-based Valero, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Its assets include 16 petroleum refineries with a combined throughput capacity of approximately 3 million barrels per day, 10 ethanol plants with a combined production capacity of 1.2 billion gallons per year, and a 50-megawatt wind farm. Approximately 6,800 retail and branded wholesale outlets carry the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland.