(Updates with closing share price in penultimate paragraph.)
May 22 (Bloomberg) -- Hess Corp. agreed to sell its gasoline stations to Marathon Petroleum Corp. for $2.6 billion, the latest and largest in more than $12 billion of asset sales as the company focuses on producing oil and natural gas.
Hess found a buyer after filing paperwork in January to put the 1,342 stations along the U.S. East Coast into a separately traded public company. The deal is part of its effort to streamline operations following pressure from activist investor Paul Singer’s Elliott Management Corp. last year.
“The sale of our retail business marks the culmination of our strategic transformation into a pure-play exploration and production company,” Chief Executive Officer John Hess, son of the New York-based company’s founder, said in a statement today. Hess said in a separate statement it will continue its 50-year practice of selling holiday toy trucks at the stations this year, and going forward they will be sold online.
Marathon Petroleum, which was itself formed by the spinoff of Marathon Oil Corp.’s refinery and retail business, said the purchase will make it one of the largest owners and operators of convenience stores in the U.S., with locations in 23 states. The deal also includes transport trucks and capacity on the Colonial pipeline.
Hess-branded stations will disappear over the next three years, Marathon Petroleum CEO Gary Heminger said today on a conference call with analysts. The additional stations will buy 200,000 barrels a day from Marathon Petroleum’s refineries, guaranteeing a buyer for 75 percent of the company’s gasoline and diesel output.
The company expects to save $120 million annually from combining operations and is targeting another $70 million a year from boosting profit margins at Hess stores.
Marathon Petroleum put the transaction’s total value at $2.87 billion. That comprises a cash purchase price of $2.37 billion, an estimated $230 million of working capital and $274 million of capital leases, it said in a separate statement.
The acquisition is expected to be funded with a combination of debt and available cash, with closing likely in the third quarter, Findlay, Ohio-based Marathon Petroleum said.
Heminger has openly coveted the Hess stores, telling analysts on an October earnings call that they “have one of the best-looking systems on the East Coast.”
The purchase is “a win-win situation and not totally unexpected,” Fadel Gheit, a New York-based analyst for Oppenheimer & Co., said today in a telephone interview. “What Hess got was at the high end of Street estimates and much higher than we thought they could do.”
Proceeds from the sale will be used for additional share repurchases. Hess increased its buyback authorization to $6.5 billion from $4 billion, the company said today.
With today’s transaction, Hess has raised $12.2 billion from asset sales since 2013, Gheit wrote in a note to clients. This is the biggest divestiture, followed by the $2.05 billion sale of the company’s Russian subsidiary Samara-Nafta to OAO Lukoil in April 2013.
Hess is one of several energy companies, including ConocoPhillips and Marathon Oil, that have gotten rid of retail stations as they separate so-called downstream operations from oil and gas production in response to investor calls for more focused corporate structures.
Hess operates fuel and food outlets from Florida to New Hampshire and is the largest Dunkin’ Donuts Inc. franchisee by number of sites, according to the January filing. The company had $943 million invested in the retail business as of Sept. 30, the filing showed.
Hess rose 1.1 percent to $90.29 at the close in New York, after reaching its highest intraday price since 2008. Marathon Petroleum fell 0.9 percent to $86.91.
Barclays Plc acted as financial adviser to Marathon Petroleum and Jones Day LP served as legal adviser. Goldman Sachs Group Inc. advised Hess.