Parkland to Acquire Chevron Canada's Downstream Fuel Business

Parkland Fuel Corporation announced today that it has entered into an agreement with Chevron Canada Limited to acquire all of the shares of Chevron Canada R&M ULC, which operates its Canadian integrated downstream fuel business.

The Acquisition places important British Columbia infrastructure under experienced Canadian ownership. The business acquired as part of the Acquisition (collectively, the "Acquired Business") consists of: i) 129 Chevron-branded retail service stations principally located in Metro Vancouver, which complement Parkland's existing 44 Chevron-branded sites in British Columbia (the "Retail Business"), ii) 37 commercial cardlock and three marine fueling locations (the "Commercial Business"), iii) a complimentary refinery in Burnaby, terminals located in Burnaby, Hatch Point, and Port Hardy, British Columbia, and a wholesale business which includes aviation fuel sales to the Vancouver International Airport (collectively, the "Supply and Wholesale Business").

Subject to satisfaction of customary closing conditions, Parkland will pay approximately $1,460 million (US$1,100 million), plus an estimated $186 million in working capital for the Acquired Business.

"This accretive acquisition further strengthens our supply-focused business model and adds significant scale with the premier Chevron retail brand and network in British Columbia," said Bob Espey, President and Chief Executive Officer of Parkland. "Parkland is acquiring a highly integrated business which adds significant supply infrastructure and logistics capability to support Parkland's existing operations. The refinery in Burnaby is an important asset to Metro Vancouver and British Columbia and we will continue to operate it with the capable and experienced professionals who manage the refinery today. We look forward to welcoming the Chevron team to our company, and to deepening our relationships in British Columbia."

Acquisition Highlights

Strategic Rationale for the Acquisition

Acquires British Columbia's premier fuel marketing business and will be the exclusive distributor of Chevron-branded fuels; Adds more than 2.5 billion litres of annual volume and $230 million in estimated Normalized EBITDA excluding expected synergies; Acquires key supply infrastructure (three terminals and a high value refinery with pipeline access) to significantly enhance Parkland's supply advantage; Secures Parkland's position as Canada's largest fuel retailer by site count supplying over 1,800 service stations; Develops Parkland's marine logistics capability in a strategically attractive Vancouver-area waterfront location; and The Acquisition, along with the previously announced asset purchase agreement with Alimentation Couche-Tard Inc. to acquire the majority of the Canadian business and assets of CST Brands, Inc. (the "CST Acquisition") which is expected to close in the second quarter of 2017, provide Parkland with significant opportunity for synergies.

Retail and Commercial Businesses

Acquires 129 Chevron branded retail service stations, adding 950 million litres in incremental annual retail fuel volume and strengthening its position as the largest fuel retailer by site count and the second largest convenience store operator in Canada pro forma the CST and CCL acquisitions; Adds high quality company-owned retail footprint in Metro Vancouver that complements Parkland's existing 44 Chevron-branded retail sites in British Columbia; and Acquires 37 commercial cardlock sites in British Columbia and Alberta, and three marine fueling stations in Vancouver, adding 370 million litres in new Commercial volume and complementing the Ultramar branded cardlock network in Eastern Canada once the CST Acquisition closes.

Supply and Wholesale Business

Acquires a 55 thousand barrel per day (3.7 billion litres per year) refinery in Burnaby that is highly integrated with the retail, commercial, and wholesale businesses, as 85% of the refinery's production is sold through the acquired marketing assets;
 Acquires three terminal assets in Burnaby, Hatch Point and Port Hardy;
Acquires a wholesale aviation business serving Vancouver International Airport ("YVR"); Ideally located refinery to serve the British Columbia market as the largest of only two refineries in the province, and the only one in the Vancouver supply area; Provides exclusive source of Supreme Plus 94 octane gasoline sold throughout British Columbia; and
Benefits from a track record of highly reliable operations under CCL's ownership.

Synergies and Accretion

Total identified annual run-rate synergies of $35-$50 million, resulting in total estimated Normalized EBITDA of $265-$280 million including synergies;
30%+ accretion to 2016 distributable cash flow per share (pro-forma the CST Acquisition) on a run-rate, normalized basis; and
Pro forma Net Debt to EBITDA of approximately 3.5x with a strong deleveraging profile; Parkland expects to reduce its leverage ratio to well within its previous guidance by 2019.

Other Transaction Details

Parkland will invest in the retail operations and apply its expertise as a leading fuel marketer and convenience store operator to enhance the customer experience;
Parkland intends to retain the key management personnel who possess the refining knowledge and expertise acquired as part of Chevron Canada's 85 year experience operating the refinery in Burnaby; and Parkland commits to continuing Chevron Canada's active role in community initiatives.

Acquisition Financing

The Acquisition and related fees and expenses will be financed with a fully underwritten financing package including:

 Approximately $660 million from a bought deal private placement of common shares in Parkland ("Shares"); $268 million drawn on revolving credit facility and $500 million from a bridge facility, both of which have been fully underwritten by The Toronto-Dominion Bank and National Bank of Canada as Co-lead Arrangers and Joint Bookrunners; and  $40 million of non-debt sources, the majority of which is expected to be cash flows from operations.

Parkland expects to replace the bridge facility with alternative longer term debt prior to the closing of the Acquisition. Furthermore, Parkland intends to enter into a working capital financing agreement with Merrill Lynch Commodities to finance the hydrocarbon inventory and receivables, which are estimated to be $258 million at the close of the Acquisition.

"The scale of the pro-forma business combined with the strong cash flow from operations and operational synergies expected from the Acquired Business will further strengthen Parkland's balance sheet and capital structure," said Mike McMillan, Chief Financial Officer. "The transaction financing structure we have put in place enables Parkland's pro forma leverage ratio to be approximately 3.5x and is expected to be reduced further in 2019."

In order to finance a portion of the Acquisition, Parkland has entered into an agreement with a syndicate of underwriters (the "Underwriters") bookrun by TD Securities Inc. and National Bank Financial Inc., to sell approximately 24 million Shares on a bought deal private placement basis. The Shares will be sold at a price of $27.70 per Share (the "Offering Price") for gross proceeds to Parkland of approximately $660 million (the "Offering").

The Shares will be offered by way of private placement exemptions to accredited investors in all provinces of Canada, and in the United States on a private placement basis pursuant to exemptions from the registration requirements of the United States Securities Act of 1933, as amended. The Shares will be subject to a four month hold period, under applicable securities laws in Canada. Closing of the Offering is expected to occur on or about May 9, 2017, subject to Toronto Stock Exchange and other necessary regulatory approvals.

The Acquisition is subject to the receipt of customary third-party consents and regulatory approvals, including approval from the Competition Bureau of Canada. Closing of the Acquisition is expected to be in the Q4 2017.

Source: Parkland Fuel Corporation
Date: Apr 18, 2017