CST Brands Inc. announced that it has entered into definitive agreements to purchase 100% of the membership interests of Lehigh Gas GP LLC, the general partner of Lehigh Gas Partners LP (LGP) from Lehigh Gas Corp., and all of the outstanding IDRs of LGP.
The aggregate consideration will be $17 million in cash and approximately 2.044 million shares of CST common stock. Based on the closing share price of CST Brands stock as of Aug. 5, 2014, the total consideration is currently valued at approximately $85 million.
Joe Topper, the chairman and CEO of LGP, will continue as president and CEO of LGP and will join the board of directors of CST Brands. Topper and other insiders are not selling any of their limited partner interests in LGP in the transaction and will continue to own subordinated and common units representing approximately 44% of the limited partner interests in LGP.
The transaction overall does not involve the sale or purchase of any of the common or subordinated units of Lehigh Gas Partners. LGP will continue to operate as a separate, publicly-traded, master limited partnership (MLP) and maintain its current headquarters in Allentown, Pa.
· Provides CST Brands access to capital through a growth-oriented MLP vehicle to execute its long-term strategic plan
· Drop-down asset sales to LGP and an expanded set of external opportunities at LGP to drive IDR cash flow growth for CST Brands
· LGP gains access to a pipeline of drop-down asset acquisitions from CST Brands to fuel future distribution increases at LGP
· Cash flow from asset drop downs and IDRs to provide CST Brands with capital to pursue organic growth opportunities
· Creates a leading platform in the industry with fuel distribution and retail operations expertise
· Eliminates upfront costs and market risks of pursuing an MLP IPO of CST-only assets
In addition to LGP’s growth-through-acquisition strategy, which has been successfully executed since Lehigh went public, CST Brands has a strong portfolio of assets that it can offer as drop-down candidates to LGP, including 1.9 billion gallons of annual domestic wholesale fuel volumes, based on CST Brands’ 2013 domestic fuel volume, and a portfolio of recently completed new to industry (“NTI”) stores. Furthermore, CST Brands plans to build additional NTI stores each year that will serve as another set of potential drop-down assets. Any future drop down transactions will be subject to the approval of the independent conflicts committee of the general partner of LGP and the Board of Directors at CST Brands.
“The transaction provides both the shareholders of CST Brands and the unitholders of LGP with the benefit of strategic growth options for the future and a symbiotic relationship for stronger growth together,” said Kim Bowers, chairman and CEO of CST Brands. “We expect that the transaction will provide us with opportunistic access to the MLP capital markets, the opportunity to grow our U.S. wholesale business and to expand our new store build program, as well as provide us strategic flexibility in the consolidating fuel and convenience retail industry.”
Joe Topper, chairman and CEO of Lehigh Gas Partners, added, “The transaction provides both for greater certainty of, and an accelerated rate of, future distribution growth of LGP and creates a tremendous platform for future growth in the industry for both CST Brands and LGP, while enhancing both companies’ goal of increasing shareholder and unitholder value.”
The transaction has been approved by the Board of Directors of CST Brands. The closing of the transaction is subject to customary conditions, including consent of the lenders and modification of the credit facilities of CST Brands and Lehigh Gas Partners. The transaction is expected to close early in the fourth quarter of 2014.
BofA Merrill Lynch acted as a financial advisor and Paul Hastings LLP acted as legal counsel to CST Brands. Barclays acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to Lehigh Gas Corporation and its affiliates.
CST Brands Share Repurchase Plan
CST Brands also announced that its board of directors has authorized the repurchase of up to $200 million of CST Brands’ common stock, until such authorization is fully utilized or withdrawn by the board.
Under the stock repurchase program, CST Brands is authorized to repurchase, from time-to-time, shares of its outstanding common stock in the open market, at management’s discretion based on market and business conditions, applicable legal requirements and other factors, or pursuant to an issuer repurchase plan or agreement that may be in effect.
The repurchase program authorized by the Board of Directors of CST Brands does not obligate CST Brands to acquire any specific amount of common stock and will continue until otherwise modified or terminated by CST Brands’ board at any time at its sole discretion and without notice.