Parkland Fuel Corp. is buying a controlling stake in the Caribbean’s largest independent petroleum distributor for $1.57-billion, extending its fuel-supply reach to the massive U.S. Gulf Coast market.
Parkland is acquiring a 75-per-cent interest in Barbados-based SOL Investments Ltd., which distributes and sells fuel in 23 countries under its own brand as well as the Shell and Esso banners. Privately held SOL operates 526 gas stations in the Caribbean.
Following the merger, the business will have 2,375 retail locations, a 28-per-cent increase from Parkland’s current number. Annual fuel volume will increase by 29 per cent.
SOL also has 32 import terminals, seven pipelines, three marine berths and 10 ships, which means a major expansion to Calgary-based Parkland’s supply business, which has so far been concentrated in Canada and the northern United States.
The deal marks the latest in a series of big expansions for Parkland, which has its roots in Red Deer, Alta. In 2017, it bought the B.C. retail-gas business from Chevron Corp., as well as the Burnaby, B.C., refinery, for $1.5-billion. It currently markets fuel in Canada under the Chevron, Esso, Ultramar and Fas Gas brands.
SOL was founded by Sir Kyffin Simpson, who first acquired Royal Dutch Shell PLC’s businesses in the eastern Caribbean, Guyana, Suriname and Belize in 2005, and has since made a number of acquisitions, including several assets from Exxon Mobil Corp.
“What we saw is a business with very similar characteristics to Parkland – a good marketing business that’s been growing both organically and through acquisition,” Parkland chief executive Bob Espey said in an interview. “But the key piece is that it’s underpinned by a really robust supply system. … It’s like Parkland on water.”
Sir Kyffin said he had approached Parkland to discuss a tie-up after frequently hearing from SOL’s bankers at Canadian Imperial Bank of Commerce of the two companies’ similarities in the fuel retail, distribution and supply businesses. SOL has held a 1.5-per-cent stake in Parkland for the past few years.
“We had watched Parkland, always admired them and became a shareholder in them,” he said. “Then when they moved ahead of us quite dramatically, it was suggested that we really have a chat with each other, which we did.”
Shares in Parkland jumped 5 per cent on the Toronto Stock Exchange, hitting a new high of $44.30 on Wednesday. They are up 70 per cent since the start of the year.
Under the deal, Parkland will get three-quarters of the shares of SOL Investments and SOL will acquire a further 8.4 per cent of Parkland’s shares, lifting its interest to 9.9 per cent. After two years, Parkland will have the option to buy – and SOL will have the option to sell – the remaining 25 per cent of SOL for 8.5 times adjusted earnings before interest, taxes, depreciation and amortization.
The deal offers a host of benefits for Parkland, including high market share in the countries where SOL operates, favourable tax rates and new markets for its loyalty programs, said Laura Lau, portfolio manager at Brompton Group in Toronto. “It’s new geography, and certainly there’s risk there – there always is. But we’ve seen them in new geographies able to achieve synergies and generally be able to execute.”
Parkland will finance the deal with $1.1-billion of debt as well as the $518-million it will garner from issuing the shares to SOL, the companies said. It will refinance the debt with long-term borrowing following the close of the deal, it said.
The acquisition will allow Parkland to access supply in the Gulf Coast in large volumes, while diversifying its markets outside Canada and the United States, Mr. Espey said. “It will enable us to work with our supply partners now on a North America-wide basis.”
Parkland said it has the capacity to take on the debt and aims to pay it down as cash flow increases and as it achieves savings from the merger. Following the announcement, Standard & Poor’s upgraded the company’s credit rating to BB stable, from BB minus.
The deal is expected to close before the end of the year.
Jeffrey Jones