ARKO urges Travel Centers of America to seriously consider acquisition proposal

Parradee Kietsirikul

• Convenience store operator ARKO (NASDAQ:ARKO) has urged to the board of Travel Centers of America (NASDAQ:TA) to seriously consider its proposal to acquire TravelCenters.
• TA had agreed to a $1.3B sale to BP (NYSE:BP) last month for $86/share in cash.
• On Mar. 23, there were reports on TravelCenters of America receiving a $92 a share offer from an undisclosed party. The unsolicited, non-binding indication of interest was from the so-called Party G, a publicly traded fuel supplier and convenience store operator to purchase 100% of the company.
• ARKO said on Monday it had submitted on Mar. 14 the proposal, and TA board's decision to reject the proposal was incorrect and not in the best interests of TravelCenters' stockholders.
• ARKO's proposal is superior to BP's offer of $86 a share, representing a premium of $6.00 per share to the value of BP's offer, the company said.
• Source: Press Release

Comments

[itsjustmath]

It is possible ARKO’s persistence will eventually force BP to raise their offer.

[rjm22]

@itsjustmath That is my hope but it seems like TA shares would be up more to reflect that
I mean TA was trading roughly $1.40 below the $86 reflecting the time value of $ until we get paid
If the $92 was fairly certain it would seem the arbs would take it to $90 anyway

That tells me the street does not believe

[rjm22]

ARKO puts out another letter but TA shares are yawning at the news

Why can't ARKOs bankers get their offer in a form that TA cannot turn down?

ARKO Corp. Details Significant Updates Provided to Travel Center of America’s Board on Superior Acquisition Proposal
Superior Proposal of $92 per share backed by additional capacity, underscoring ARKO’s confidence in obtaining financing for a potential transaction
GLOBENEWSWIRE 12:00 PM ET 3/29/2023

RICHMOND, Va., March 29, 2023 (GLOBE NEWSWIRE) -- ARKO Corp.(ARKO) , a Fortune 500 company and one of the largest convenience store operators in the United States, today issued a letter to TravelCenters of America’s (“TravelCenters”) Board, setting forth additional details of ARKO’s financing in connection with its proposal to acquire TravelCenters, and again asking for TravelCenters’ engagement with ARKO(ARKO) in the sale process.

The letter, as well as a Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2023, discloses a second amendment to ARKO’s Standby Real Estate Purchase, Designation and Lease Program agreement (“Program Agreement”) with Oak Street, a Division of Blue Owl Capital (“Oak Street”), in which Oak Street has agreed, subject to the terms contained in the Program Agreement, to provide for an additional $1.25 billion of capacity specifically to finance ARKO’s acquisition of TravelCenters.

In addition to the additional capacity provided by the amended Program Agreement, ARKO(ARKO) has significant additional liquidity through cash, cash equivalents, and availability under its existing credit lines. ARKO(ARKO) has never required any financing conditions and has closed every acquisition it has put under contract. ARKO’s proposal to TravelCenters offers no financing-related conditions.

TravelCenters’ Board has refused to engage at all with ARKO(ARKO) since ARKO(ARKO) originally submitted, on March 14, 2023, a superior proposal of $92 a share, a nearly 7% premium to the $86 per share price pursuant to TravelCenters’ existing merger agreement with BP Products North America Inc., a wholly owned indirect subsidiary of BP p.l.c(BP). . ARKO’s proposal was further improved on March 27, 2023, including ARKO’s willingness to pre-pay $202 million for 11 years of lease payments, using the same discount rate as BP’s proposal, in comparison to BP’s proposal to pre-pay $188 million for 10 years of lease payments.

ARKO (ARKO) believes it is riskless to TravelCenters’ stockholders for TravelCenters’ Board to engage with ARKO(ARKO), and that doing so could reasonably be expected to lead to a superior proposal. ARKO(ARKO) has retained financial and legal advisors for this transaction and believes this update merits immediate engagement by TravelCenters’s Board, management, and advisors.

[valrisk]

Arko has given an inferior offer with a possible higher price

[houtex]

There’s more context here: www.sec.gov/...

[toomuchgas]

Think BP will have no trouble increasing its offer. Is there any penalty if TA rejects the BP offer?

[rjm22]

@toomuchgas There is almost always a penalty
But unless arko can provide proof of financing withOUT a months due diligence BP won't need to

[houtex]

@toomuchgas
If the board recommends a “superior proposal” (this would be that) it’s a $51.9 million payment to BP.

[itsjustmath]

Good luck.

[rjm22]

Begging publically is not the answer- the answer is to correct the deficiency that TAs board saw

From quick look- ARKO has a $1 billion market cap BP has $111 billion
So how can ARKO raise the $$?

On Wednesday, the TravelCenters (TA) independent board members determined that the offer from Party G didn't constitute a superior proposal to the BP (BP) deal. The board members said the offer would require "significant" third-party financing and there was no firm commitment from a potential financing source to provide such financing and the financing markets "remain uncertain."

[rjm22]

@rjm22 years ago I owned a stock and a 3rd party came to the table after they already had a firm offer- there was no financing contingency
The board took a few days but did determine it was a superior offer
From there the original bidder matched it which they were allowed to do
And then the other party made several more offers- several times the original bidder again matched but on the last one the original bidder went over rather than matching
And that was that
I think it ended up going for $14.50 while the board originally agreed to $12 I believe

But that only happened because the outside bidder had the cash and there was no contingency or month long due diligence

I would much rather have $92 but not if ARKO can't get the financing and BP walks away and the stock falls to $70

[patientmike]

@rjm22 This is begging?

[Jeffrey_Cheng]

@rjm22 It is a private equity type transaction. First, the majority of the purchase price will actually be financed through TA's assets. Cash outflow from ARKO is relatively small. Yes, it is basically financial engineering.

Here's one of the deals recently made by ARKO:

"The total purchase price for Pride was approximately $230 million plus the value of inventory. ARKO financed from its own sources approximately $30 million of the cash consideration including the value of inventory and other closing adjustments. The remaining approximately $202 million was funded by Oak Street, a Division of Blue Owl Capital (“Oak Street”), as part of the existing $1.15 billion agreement with the Company, according to which Oak Street acquired the majority of the real estate assets of Pride substantially concurrently with the closing of the transaction. The Company now leases these real estate assets from Oak Street."

The convenience store industry is Disneyland for private equity and M&A, despite of little market growth.

[patientmike]

Hmmm. Many on SA have said convenience stores are going out of business. I own 4. Have performed superior to the market.