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Alimentation Couche-Tard is preparing for its largest U.S. acquisition in more than a decade after striking a friendly deal to buy The Pantry Inc., a convenience store operator with more than 1,500 locations in 13 southern states.

The deal values North Carolina-based company at US$1.7 billion, with Couche-Tard paying US$36.75 cash per share.

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Couche-Tard’s shares hit an all-time high of C$45.36 in early trading Thursday on the Toronto Stock Exchange. They were up $2.44 or 5.7% at $44.98 in later morning trading.

The Pantry’s stock gained 93 cents of 2.6% at $36.45 on Nasdaq after rising 23% on Wednesday amid reports of a transaction in the works. The offer is also 39% above the 30-day average share price as of Dec. 16, prior to media reports.

Couche-Tard has one of North America’s largest network of convenience stores, operating primarily under the Couche-Tard and Mac’s banners in Canada as well as Circle K throughout the United States. The Laval-based company gained a toe-hold in the U.S. in 2003 with the acquisition of 1,663 Circle K corporate stores located in 16 states in a deal with ConocoPhillips.

It says The Pantry — which operates primarily under the Kangaroo Express banner — will increase Couche-Tard’s presence in the Southeastern and Gulf Coast regions of the United States. More than half of the Kangaroo Express stores are located within 40 kilometres of a military installation.

“We strongly believe that our all-cash offer is compelling for The Pantry’s shareholders as it offers them the opportunity to realize full and immediate value for their investment,” said Brian Hannasch, Couche-Tard’s president and CEO.

The deal is being supported by The Pantry’s board of directors, as well as Couche-Tard’s, but requires approvals by regulators and shareholders of the North Carolina-based company.

“I am very proud of The Pantry employees and what they have accomplished,” said president and CEO Dennis Hatchell. “Their work has clearly been recognized by the marketplace and by Couche-Tard, culminating in this transaction.”

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“This is an exciting combination of two strong companies that complement each other extremely well. Unlocking the strategic value of these combined firms will benefit the current Pantry shareholders and provide ongoing opportunities for most of our employees.”

The acquisition is expected to close in the first half of 2015 and is subject to customary regulatory approvals. It is subject to a US$39.5 million break fee if the deal isn’t finalized in the next year.

Founded in 1967, The Pantry grew mainly through acquisitions beginning in the late 1980s. Like Couche-Tard, it has been focusing on selling more high-margin fresh food. It sells its own private label bottled water and is the fifth-largest location for Subway restaurants.

Couche-Tard has been looking for acquisitions after reducing its debt following the US$2.8 billion deal in 2012 to acquire Statoil Fuel & Retail, which gave it the largest chain of gasoline stations in Scandinvia.

The Pantry deal was reached about four years after the failure of its US$1.9 billion hostile bid for Casey’s General Stores.

Peter Sklar of BMO Capital Markets estimated that Couche-Tard could achieve US$75 million in operating cost savings, representing more than one-third of The Pantry’s EBITDA, and add about 20 cents per share to Couche-Tard’s earnings.

According to industry sources, The Pantry has about 6,000 employees — compared with Couche-Tard’s more than 60,000 in North America.

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Originally published on Advisor.ca

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