Valero Updates Its CST Brands Spinoff

Earnings season is always chock full of spinoff news. Valero (VLO) recently provided updates on its upcoming retail segment spinoff during its Q4 conference call and during a presentation at the Credit Suisse Energy Summit. PDF versions of the transcript & presentation can be found here. The new company, CST Brands, operates ~1,900 retail fuel and merchandise sites in the US and Canada, the vast majority of which are company owned. The company will assume over a $1b of new debt, the proceeds of which will go to Valero.

Here is what Valero had to say about the new company’s prospects:

We believe the separated retail business will perform well and unlock value for shareholders for several reasons. First, CST Brands will be the second largest publicly traded independent retailer of fuel and convenience merchandise in North America with nearly 1,900 sites. Second, these sites are located in geographically diverse regions: the southwestern United States and Eastern Canada. Third, many of the 1,032 U.S. retail sites are in Texas and surrounding states, which have strong economic growth. Fourth, CST Brands has substantial ownership of the sites with approximately 60% owned, not leased. Fifth, there’s a long history of strong financial performance and brand recognition. And finally, CST Brands has significant growth opportunities in merchandise, food service, and new-build locations.

You can read the Form 10 and judge for yourself. Assuming  all of the regulatory hurdles are met, the plan is for Valero to spin out 80% of the company to shareholders sometime during Q2 with the remaining 20% stake being liquidated at a later date. The new company is expected to trade on the NYSE under the ticker CST.

For some more background on the company and transaction, check out our earlier post here.

Disclosure: Author holds no position in any stock mentioned.

3 thoughts on “Valero Updates Its CST Brands Spinoff

  1. charly

    Hi,

    first I’d really like to thank the Spin Doctor for providing such quality informations. I also follow for two months or so the spinoff situation and Valero’s steps for separation and distribution. The retail business seems so far very stable as I read some important sections of Form 10. The Spin Doctor shared very good points, so I don’t have to repeat them again. Anyway I think I have to do further research to make a proper final judgment, as you should do for yourself.

    But I thought this could be maybe a opportunity for buying ,,call options” on Valero before the separation date. Of course Valero will update further information, how many shares one will receive for each Valero share hold, the distribution date etc.

    I think many of the readers here have red Joel Greenblatt’s ,, You can be a market genius’. Basically it’s the same idea as Greenblatt talks about the spinoffs.

    So I’d like to share this thought. Maybe it’s not a good one, but it would be great if we together could develop a conversation about the pros and contras of call options on Valero.

    I appreciate all comments and thoughts. Thank you very much.

  2. Charly

    Hi,

    first I’d really like to thank the Spin Doctor for providing such quality informations. I also follow for two months or so the spinoff situation and Valero’s steps for separation and distribution. The retail business seems so far very stable as I read some important sections of Form 10. The Spin Doctor shared very good points, so I don’t have to repeat them again. Anyway I think I have to do further research to make a proper final judgment, as you should do for yourself.

    But I thought this could be maybe a opportunity for buying ,,call options” on Valero before the separation date. Of course Valero will update further information, how many shares one will receive for each Valero share hold, the distribution date etc.

    I think many of the readers here have red Joel Greenblatt’s ,, You can be a market genius’. Basically it’s the same idea as Greenblatt talks about the spinoffs.

    So I’d like to share this thought. Maybe it’s not a good one, but it would be great if we together could develop a conversation about the pros and contras of call options on Valero.

    I appreciate all comments and thoughts. Thank you very much.

  3. Clever Nickname

    I think you’ve got the right idea buying the parent before the spin on this one, but the 20% stake that the parent is holding on to makes me think options are a bad idea. They’ll be liquidating that stake at an unknown time and pace, which means selling pressure for a bit. The fundamentals seem mostly good from what I’ve seen, but I’m not sure the price will move significantly before the options expire. I suppose you could always go with LEAPS. I think both companies will do well, I just don’t know when.

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