Valero may raise $3.5 billion through retail arm auction-sources

NEW YORK, Sept 27 Thu Sep 27, 2012 8:19pm IST

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NEW YORK, Sept 27 (Reuters) - Valero Energy Corp is selling its retail business, which operates gas stations and convenience stores, through an auction that could fetch more than $3.5 billion and has lured the interest of private equity firms and convenience-store operators, people familiar with the matter said.

Valero's retail business, which consists of nearly 1,000 U.S. stores and some 775 units in Canada, has around $450 million in annual earnings before interest, tax, depreciation and amortization (EBITDA) and could sell for around 8 times EBITDA, or about $3.5 billion, two of the people said.

The U.S. refining company had said in July it would split off its gas station and convenience stores, and cited a tax-free spinoff to shareholders as one of the options.

Valero, which is being advised by Credit Suisse Group on the retail split, has sent financial information about the unit to interested parties and is expected to receive initial offers in October, those familiar with the matter said.

Several big private equity firms, including TPG Capital LP and Carlyle Group LP, are among the parties that are taking an initial look, one of the people said.

Large convenient store chains such as Alimentation Couche-Tard Inc or 7-Eleven would also likely have some interest, two other people said.

The people asked not to be named because the sale process is not public.

TPG and Carlyle declined to comment, while Credit Suisse, Couche-Tard and 7-Eleven did not immediately respond to requests for comment.

"We have said we are looking for a tax-efficient method to unlock the value that is in our retail business," Valero spokesman Bill Day said on Thursday, declining to comment on the sale process.

The auction is at a very early stage and it remains unclear if the U.S. and Canadian operations would be sold as a whole or separately, the people said.

The retail split would allow Valero to focus on its core refining business. It could also generate additional shareholder value since retail businesses similar to Valero's trade at higher valuations than refining companies.

Retail units are typically viewed as an outlet for fuels produced at a company's refineries. Such stores allow refiners to keep utilization rates up even when demand slows, a situation that puts them at an advantage to competitors without stores.

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