CST / Couche-Tard: Still No Approval

In a recent article in DepQuebec, we pointed out that, based on the FTC‘s average decision duration (as determined by an authoritative index), Couche-Tard‘s acquisition of CST Brands was expected to be approved by Monday, June 19.

Now we are Wednesday, June 21, and still no decision in sight.

In fact, the FTC made an announcement yesterday to block a merger, but in a completely different file.

Can such delays reflect the difficulties encountered in the approval process?

According to financial analyst Keith Howlett of Desjardins Capital Market, Couche-Tard should not be expected to divest stores.

However, this is undoubtedly the most tricky approval to date for the company:

  • When Couche-Tard acquired Circle K in 2004, the company had no significant presence in US territory, therefore no concentration risk.
  • When Couche-Tard made an offer to buy Casey’s in September 2010, the company had previously negotiated a pre-agreement with the FTC in which it agreed to divest 25 stores.
  • When Couche-Tard entered into an agreement with CST Brands in 2016, it didn’t validate the transaction in advance with the FTC.

This time, the situation is potentially more problematic given that the merger of the two groups, present in several similar states like Arizona and Texas, could create pockets of store concentration that the FTC might find intolerable.

To get a better idea, we have tried to figure out in which areas store concentration would be the highest as part of this merger.

Data on the number of stores per state were unveiled by Couche-Tard but some figures include several states and make it difficult to get a fair picture of the situation.

We chose instead to rely on Corner Store et Circle K store locators (here and here) to get a glimpse of the situation which, by the way, is nothing scientific and aims only at providing some kind of overview. We also compare it with Quebec  — a market with a fairly high number of Couche-Tard stores — to get a better assessment of store concentration levels.

Here are the results.

QUEBEC
ARIZONA
(Phoenix & Tucson)
NEW MEXICO
(Albuquerque)
TEXAS
(El Paso, Houston,
Dallas, San Antonio)
LOUISIANA
Circle K or Couche-Tard
582
532
55
125
150
Corner Store (CST)
64
40
400
25
Total
582
596
95
525
175
Population (est.)
8.5 M
5 M
1 M
14 M
4.7 M
Estimated ratio of concentration
MEDIUM
14,604 pop/st.
HIGH
8,389 pop/st.
HIGH
10,526 pop/st.
LOW
26,667 pop/st.
LOW
26,875 pop/st.

This table shows that two areas are somewhat at risk, namely Albuquerque in New Mexico and Phoenix-Tucson in Arizona.

In Arizona, this is mainly due to the relatively high number of already established Circle K stores. The transaction adds only about sixty Corner Store stores.

So it seems at first glance that the combination of the two chains is very good, but that the sum of both is apparently a little high in some areas.

Most likely, Couche-Tard will not have to divest a significant amount of stores if any at all, but the longer the approval period takes, the more likely the speculation of forced sale will grow.

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