Canada's Alimentation Couche-Tard Inc (ATDb.TO) will buy smaller U.S. rival Pantry Inc (PTRY.O) for about $861 million, a deal that positions it as one of the top convenience store operators in North America.
The deal will add about 1,500 stores to Couche-Tard's network, boosting its presence in the southeastern and Gulf Coast regions of the United States and making it almost as big as 7-Eleven, the world's largest convenience store operator.
Couche-Tard's aggressive growth strategy was not surprising, given that the company made an unsuccessful hostile bid for Casey's General Stores Inc (CASY.O) in 2010, said Jeff Lenard, spokesman for the National Association of Convenience Stores.
The Canadian company bought Statoil Fuel and Retail in 2012 to gain a foothold in Europe.
Couche-Tard, which operates most of its U.S. stores under the Circle K banner, has over 6,300 outlets in North America. 7-Eleven operates and franchises about 8,700 stores in the region.
This is the latest in a series of deals in the North American gasretail industry, the most recent being Marathon Petroleum Corp's (MPC.N) purchase of Hess Corp's (HES.N) retail and transport business in October.
"We expect industry consolidation to continue to be a key theme in the (convenience store) space," Wells Fargo analyst Bonnie Herzog said.
Herzog said Pantry was an attractive target due to its "much improved results over the past several quarters."
The company's net profit more than doubled in the past two quarters and its shares soared 112 percent this year.
Couche-Tard offered $36.75 per share for Pantry, which operates the Kangaroo Expresschain and also runs quick service restaurants at its stores.
This represents a premium of 3.5 percent to the stock's Wednesday close. Including debt, the deal is valued at $1.7 billion. It is expected to close in the first half of 2015.
Pantry's shares rose 3 percent to $36.57 in noon trading on the Nasdaq, adding to the 23 percent jump on Wednesday after the Wall Street Journal reported that the company was nearing a deal to sell itself through an auction.
Couche-Tard shares rose as much as 8.6 percent to a record high of C$46.21 on the Toronto Stock Exchange.
The company will fund the deal through cash on hand, existing credit facilities and a new term loan.
Faegre Baker Daniels LLP was Couche-Tard's legal adviser. Willkie Farr & Gallagher LLP and Smith Anderson advised Pantry.
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