It is unlikely that Alimentation Couche-Tard will buy a minority stake in China's Sinopec Sales, the world's largest fuel retail network, an analyst said Tuesday after a report the Quebec-based retailer made the short list of potential bidders.
RBC Capital Markets analyst Irene Nattel said it doesn't make sense for Couche-Tard to purchase a stake in Sinopec Sales because it would not give it much, if any, control over the Chinese company.
"ATD (Couche-Tard) remains active on the acquisition hunt and as a key global player in the consolidating (convenience store) industry, we would expect management to take a close look at potential transactions of all shapes and sizes," she wrote in a note to clients.
"But given the capital commitment and lack of control, we believe Sinopec Sales is an unlikely candidate for ATD."
$16 billion price tag
State-run Sinopec, formerly known as China Petroleum and Chemical Corp., is planning on selling a 30 per cent interest in Sinopec Sales by the end of the year. The stake is estimated to be valued at $16 billion.
Citing unidentified sources, the Reuters news agency said Couche-Tard has been approved to join the bidding process for a stake in Sinopec Sales, along with China's Tencent Holdings Ltd., China Life Insurance Co Ltd., ENN Energy Holdings Ltd., Fosun Group, Hopu Investment Management and Affinity Equity Partners.
It's unclear how many companies will be make up the short list. Bids are due at the end of August, the news agency reported.
Nattel noted the potential deal exceeds the amount she believes Couche-Tard has set aside for acquisitions.
"The capital required for this transaction far exceeds our estimate of ATD's stand-alone balance sheet capacity around $2 billion and we believe a capital commitment of that magnitude for a minority stake in the subsidiary of a state-run Chinese company could be an unlikely proposition for ATD," she wrote.
"A transaction of this magnitude would also likely delay any credit rating upgrade, which the company has been hoping for and working towards."
Couche-Tard has been actively looking for acquisitions as it tries to grow its network of stores internationally.
It currently has more than 6,000 convenience stores and gas stations in North America, more than 2,000 stores in Europe and 4,600 stores in Asia under the banner Circle K.