Hess Agrees To Sell Retail Business To Marathon Petroleum For $2.6 Bln Cash

(RTTNews) - Independent energy company Hess Corp. (HES) Thursday said it has agreed to sell its retail business to Marathon Petroleum Corp. (MPC) for a total cash consideration of $2.6 billion. Proceeds from the sale will be used for additional share repurchases. The stock is up 3 percent in pre-market activity.

Hess Retail is the largest chain of company operated gas stations and convenience stores along the East Coast and has 1,342 locations.

Hess said it has increased its existing share repurchase authorization from $4 billion to $6.5 billion. Since the commencement of the program in August 2013, the company has repurchased around $2.8 billion in stock.

John Hess, CEO, said, "The sale of our retail business marks the culmination of our strategic transformation into a pure-play exploration and production company. I especially want to express my deepest appreciation to our employees in the retail business for their outstanding work and extraordinary dedication over the years..."

The transaction is expected to be completed before the end of 2014.

Meanwhile, Marathon Petroleum said separately that its subsidiary, Speedway LLC, has signed a definitive agreement with Hess to acquire Hess Retail Holdings LLC.

Marathon Petroleum said the deal includes all of Hess' retail locations, transport operations and shipper history on various pipelines, including around 40,000 barrels per day on Colonial Pipeline.

Speedway is the nation's fourth-largest convenience store chain by number of company-owned and -operated sites. It has about 1,480 stores located in nine states.

The addition of Hess' stores to the Speedway network will broaden Speedway's geographic footprint and position it as the premier convenience store operator in the eastern U.S.

The combined business will have 2013 pro forma revenues of more than $27 billion, 6.2 billion gallons of annual fuel sales, and $4.8 billion of annual merchandise sales at more than 2,700 retail locations.

According to Marathon Petroleum, the total consideration is $2.874 billion, comprising of a cash purchase price of $2.37 billion, an estimated $230 million of working capital and $274 million of capital leases. The acquisition is expected to be funded with a combination of debt and available cash, and is estimated to close late in the third quarter.

MPC President and Chief Executive Officer Gary Heminger said, ''This acquisition will be transformative for MPC and Speedway as it will significantly expand our retail presence from nine to 23 states through these premier Hess locations throughout the East Coast and Southeast."

According to him, the firm's strategy is focused on growing higher-valued, stable cash flow businesses, and this transaction fully supports that objective.

With this geographic expansion, the company will be able to further leverage its integrated refining and transportation logistics operations, providing an outlet for an incremental 200,000 bpd of assured sales from its refining system.

MPC closed down 1.1 percent on Wednesday at $87.69. HES rose 1.4 percent to close at $89.30 and is up 3 percent in pre-market activity.