Is Couche-Tard circling Hess’ U.S. retail network?

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As speculation mounts that convenience-store giant Alimentation Couche-Tard Inc. is ready to pull the trigger on another major takeover target, the retail network of U.S. energy company Hess Corp. is a prime candidate, says one analyst.

"Couche-Tard would be the most logical buyer of the entire network, in our opinion, and we believe that the market be starting to price at least modest odds of a deal into the share price," TD Securities analyst Michael Van Aelst writes in a research report.

Hess moved closer to preparing its retail operations – 1,350 locations in 16 states on the U.S. East Coast – last week by consolidating ownership on a bunch of its c-stores, said Mr. Van Aelst.

"We would see this development as a positive as it would represent confirmation that the company's intention is to sell, rather than spin off, the company's 1,350 retail locations."

The diversified energy company earlier this year said it wants to exit its retail, energy marketing and energy trading businesses and focus on exploration and production.

Adding to the excitement is a trade report on Monday that a package listing Hess fuel terminals had been distributed to potential buyers, with indications that the retail "package" would soon follow, said Mr. Van Aelst.

Couche-Tard shares jumped 4 per cent on the Toronto Stock Exchange on Monday, and the analyst says this could be partly due to speculation that the sale of Hess' retail assets is near, with Couche-Tard as a likely buyer, he said.

If Hess decides to sell and offers up the entire network rather than splitting it into regional packages, it makes sense that Couche-Tard would bid, he said.

Laval, Que.-based Couche-Tard is still digesting its $2.6-billion (U.S.) purchase last year of Statoil Fuel and Retail, a unit of Norway's state-owned oil company, Statoil ASA.

But it has the resources to easily pull off a deal to buy Hess' retail network, which would probably be in the $1.5-billion range, Mr. Van Aelst believes.

Senior management said on its last conference call that it could handle additional acquisition opportunities – with the capacity to shell out $1.5-billion -- and could already be active on the takeover front, he points out.

The Hess assets would fit well with Couche-Tard's U.S. network of 3,852 stores, filling in gaps in the c-store company's geographic distribution, he said.

A purchase of the Hess stores would add 34 cents (Canadian) to annual earnings per share immediately and a total of at least 70 cents within two to three years, he adds.

"Under this scenario, it would therefore be expected to add about $5 immediately to Couche-Tard's share price and about $10 to our 12-month target price [of $70]," he said.