Sunoco makes $7.7-billion bid for gas station owner Parkland
An Ultramar gas station and On the Run store in Mississauga, Ont. in November, 2022. Sunoco has made a $7.7-billion bid for Parkland, which owns Ultramar, On the Run and other brands including Esso and Pioneer.Fred Lum/the Globe and Mail
Dallas-based Sunoco LP SUN-N made a friendly takeover bid for Parkland Corp. PKI-T early Monday worth $7.7-billion, potentially ending the Calgary-based fuel distributor’s boardroom battle with its largest shareholder.
Sunoco offered $44 per share for Parkland, consisting of $19.80 in cash plus .295 of a unit in a subsidiary called SUNCorp, which the buyer said represented a 25-per-cent premium to the average price of Parkland and Sunoco shares over the past seven business days.
Sunoco will also take on Parkland’s debt, bringing the total value of the transaction to $9.1-billion.
Parkland owns more than 4,000 gas stations under the Esso, Pioneer and Ultramar brands, and the On the Run convenience store chain, making it one of the country’s largest retailers. The company also runs a refinery in Burnaby, B.C. that supplies fuel to the province’s lower mainland.
“This strategic combination is a compelling outcome for Parkland shareholders,” said Michael Jennings, executive chairman of Parkland, in a press release on Monday.
“The board unanimously recommends the proposed transaction, recognizing Sunoco’s commitment to safeguarding Canadian jobs, retaining the Calgary head office, and further investing in Canada,” said Mr. Jennings.
In 2023, Parkland turned down a takeover bid from Sunoco that valued the company at $45 per share, according to analysts and reports in The Globe and Mail.
Sunoco said buying Parkland will boost its distributable cash flow per unit by 10 per cent, and the company expects US$250-million cost savings from combining its businesses within three years of closing the transaction. Sunoco owns 7,400 gas stations and 14,00 miles of pipeline.
Parkland’s board of directors endorsed Sunoco’s offer, which comes as the company deals with an activist campaign from 19.8-per-cent shareholder Simpson Oil Ltd. and hedge fund Engine Capital aimed at replaced the Parkland board.
“Our initial thought is that competing bids will be few and far between,” said analyst Ben Isaacson at Scotiabank in a report on Monday. “To date, we haven’t seen any other interested parties in Parkland’s unique portfolio of energy infrastructure assets (either separately or combined).”
“We think investors will jump at the 25 per cent premium on a stock that has been stuck in the mud on investor fatigue for quite some time,” said Mr. Isaacson.
Early Monday, Parkland share price rose by 8 per cent to $39.20 on the Toronto Stock Exchange. Sunoco units dropped by 3.8 per cent in early trading on the New York Stock Exchange, valuing the company at US$7.5-billion.
In March, Parkland launched a strategic review of its operations that included the potential sale of the company.
Shortly after, Simpson Oil nominated nine directors for the 13-person Parkland board over concerns with the company’s performance and governance. On Friday, Simpson Oil said its slate of directors had support from more than 60 per cent of Parkland shareholders.
Parkland shareholders will vote on the transaction at an annual meeting that is now scheduled for June 24. It was previously to take place on Tuesday, May 6.
On Monday, Simpson Oil said it plans to push for the Parkland meeting to take place tomorrow, as scheduled, according to Amy Freedman, spokesperson for the Cayman Islands-based company. Simpson Oil declined comment on the Sunoco offer.
The Parkland acquisition will also require approval from the federal government at a time when relations between the U.S. and Canada are in a deep freeze due to President Donald Trump’s imposition of tariffs.
Earlier this year, federal Liberals pledged to heighten reviews of deals deemed predatory, due to any decline in value of the Canadian target because of U.S. trade practices.
Sunoco will fund the cash portion of the transaction with a US$2.65-billion bridge loan.
Investment banks Barclays and RBC Capital Markets advised Sunoco and provided the debt financing. Law firms Stikeman Elliott LLP, Weil, Gotshal & Manges LLP, and Vinson & Elkins LLP acted as Sunoco’s legal advisors.
Goldman Sachs Canada Inc. and BofA Securities advised Parkland.
Parkland’s board formed a special committee to deal with the takeover, which hired BMO Capital Markets. Law firm Norton Rose Fulbright Canada LLP acted as Parkland’s legal advisor. Torys LLP acted as legal advisor to Parkland’s special committee.