Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Three years. That's how long fuel and convenience-store operator CST Brands will have lasted as an independent company, assuming the review of strategic alternatives it started last month culminates in a sale. But to the chagrin of activist investors who are angling for a deal, the universe of potential buyers is shrinking. 

With roughly 1,900 locations across the U.S. and Canada, and best known for its Corner Store brand , CST is a prime target for rival chain owners such as Canada's Alimentation Couche-Tard, Sunoco and Marathon Petroleum. Even Tokyo-listed 7-Eleven owner Seven & i Holdings has been tossed around by analysts as a potential acquirer, but that looks unlikely considering its chairman and CEO said he'd step down this week.  

Got Gas?
Shares of CST have been bolstered by its buyout chances. One of its potential buyers, Alimentation Couche-Tard, has outperformed others.

Sunoco and Marathon Petroleum have seen their shares tumble 19 percent and 25 percent this year, respectively, and the declines may douse their enthusiasm for a deal. But the companies, whose affiliated refining operations supply their gas stations, face an even bigger deterrent in the form of Valero Energy. The refiner spun off CST in 2013 but has a long-term fuel supply agreement that extends through 2028. For context, that amounted to $6.4 billion for all of the motor fuel purchased for resale by CST's U.S. and Canadian retail segments in 2015.  

Plus, even though the company's current $2.9 billion market value is well within reach for private equity firms with cash at hand, they may stay away due to the company's relatively expensive valuation (approaching 10 times its earnings before interest, taxes, depreciation and amortization) and midsize debt load.

Fuel For Thought
CST's guidance for its first quarter merchandise margins is 33.5-34.5%, up from 32.5% 12 months earlier.
Source: Bloomberg

That leaves the $25 billion Alimentation Couche-Tard as the likeliest buyer of CST, a notion it hasn't dismissed. The Quebec-based company's chairman and co-founder Brian Hannasch has told Canadian press that it would consider participating in a process for the company if invited, and that it could "probably do a deal that size" if interested. 

That's welcome news for CST shareholders, considering Alimentation Couche-Tard could easily have argued that it has its hands full. It's working to close a roughly $1.2 billion deal inked last month to buy gas stations from Imperial Oil that came a year after closing its acquisition of smaller U.S. rival The Pantry. 

Alimentation Couche-Tard can afford to pay up for CST. Assuming it pays cash of $44.09 a share or an 11.5 times Ebitda multiple , a deal would be almost 5 percent accretive to its 2016 earnings per share even without accounting for synergies, according to data compiled by Bloomberg.  Believe it or not, a deal is still accretive without synergies if Alimentation Couche-Tard stretches to pay the $53 that analysts Jefferies believe CST could fetch in an ultimate bull scenario. 

Any offer will likely come in below that, considering the obvious lack of competitive tension. 

Either way, knowing that the eventual fuel price recovery will put pressure on what have been record margins and the rebound in broader tobacco sales isn't expected to last (the segment accounts for nearly 30 percent of CST's in-store sales), it's prime time for a sale. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. CST also controls the operations of CrossAmerica, which has another 1,075 stores (per its website) -- they announce earnings, etc., together.


  2. Roughly what Energy Transfer Partners paid for Susser Holdings in 2014. 

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at