A company whose market capitalization isn’t even $1 billion is going up against one of the world’s biggest energy companies to acquire TravelCenters of America.
Convenience store operator ARKO (NASDAQ: ARKO) announced Friday it was the company that made a $92-per-share offer to acquire TA, which has an agreement in place to be sold to BP (NYSE: BP) for $86 per share.
That there was another offer at a higher price was revealed in the TA (NASDAQ: TA) proxy filing with the Securities and Exchange Commission on Thursday. But the proxy said the TA board had agreed a day earlier to stick with the BP offer, even though on paper the Arko offer is superior on a per-share basis. The proxy did not reveal the identity of the buyer with the higher bid, referring to it only as “Party G” and that it was publicly traded.
ARKO’s market capitalization was reported by Barchart on Monday at $996.2 million. Its offer of $92 per share for the roughly 15.1 million shares of TA would put the value of its bid at just under $1.4 billion, or more than Arko is worth.
In its prepared statement, Richmond, Virginia-based ARKO took aim at the TA proxy statement that suggested the offer from Party G — which turned out to be ARKO — had financing strings attached that might slow closing of an acquisition. Arko’s public announcement of its interest came after the proxy statement was filed with the SEC.
ARKO said it is “one of the most acquisitive operators of convenience stores in the United States” and that it had closed 23 deals since 2013 and has another one pending.
“ARKO has never required any financing conditions and has closed every acquisition it has put under contract,” the company said in a statement. “Arko’s proposal to TravelCenters offers no-financing related conditions.”
Suggesting the TA directors at least speak with ARKO, the statement said TA should “seriously consider ARKO’s superior proposal to acquire TravelCenters of America. Arko believes it is riskless to TravelCenters’ stockholders for TravelCenters’ board to engage with ARKO, and that doing so could reasonably be expected to lead to a superior proposal.”
ARKO became a public company at the end of 2020 through a special purpose acquisition company, Haymaker Acquisition Corp. Arko’s stock in the past 12 months, according to Barchart, is down about 8.6%. A spokeswoman for the company said it had no further comment beyond what was in its statement.
While ARKO may seem to be taking on an enormous takeover attempt that would more than double its size, one person with knowledge of its operations noted that the company does not handle most of its acquisitions by itself.
Rather, it has a strong relationship with Oak Street Real Estate Capital, a private equity real estate firm. In the most recent ARKO form 10-K filing, the role of Oak Street in helping to complete several acquisitions the company made during 2022 is noted, with Oak Street acquiring the underlying real estate and leasing it back to Arko, which then runs the convenience stores. It’s an arrangement known as a sale-leaseback.
Additionally in the 10-K, ARKO said its 100%-owned subsidiary, GPM Investments, which ARKO says serves as its “operating entity,” has an agreement with Oak Street for more purchases. The 2021 deal would see Oak Street be willing to purchase up to $1.15 billion of convenience store and gas station real estate property.
In a transcript of the company’s earnings call with analysts for the fourth quarter, chairman, president and CEO Arie Kotler, discussing ARKO’s M&A activity, said its “financial strength, financing ability and agreement with Oak Street continue to give us an advantage in our ability to move quickly and get deals done.”
Also in the 10-K, ARKO listed the names its convenience stores operate under: 1-Stop, Admiral, Apple Market, BreadBox, ExpressStop, E-Z Mart, Fas Mart, Fast Market, Handy Mart, Jetz, Jiffi Stop, Jiffy Stop, Li’l Cricket, Next Door Store, Pride, Roadrunner Markets, R-Store, Scotchman, Shore Stop, Town Star, Village Pantry and Young’s.
The company said that at the close of 2022 it was supplying fuel to 1,674 “independent dealer locations.” Its revenue in ’22 was approximately $9.1 billion
In that earnings call, Kotler described a company strategy where fuel is not just a tool to get people to come into convenience stories. Making money off it is a key goal. “Gross (fuel) profit is the most important metric when analyzing our performance,” he said.
ARKO also made tremendous margins on fuel in 2022. In its fourth quarter and year-end financial report, the company said its fuel margin was 41.4 cents per gallon in 2022 and 33.7 cents in ’21. By contrast, TA’s margins were less than 30 cents a gallon through most of 2022 and that performance was well above the historical norm, where margins tended to be either side of 15 cents a gallon.
On the same earnings call, CFO Donald Bassell said fuel margins “have moved structurally higher given industry behind the client, increased credit card fees [and] higher operating expense to cost of labor. We believe our strategy of managing margin and volume while maintaining competitive pricing is key to optimizing profitability as a growing company.”
The company’s 10-K also discussed an extensive fuel hedging program, which is not the norm in the convenience store industry.
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