The Sobeys grocery store chain is expanding its gasoline retailing business with the purchase of 250 gas stations in Atlantic Canada and Quebec from Shell Canada with an eye to add even more if the right opportunity presents itself.
"We remain willing, motivated and capable for assets that fit our portfolio in any geography we do business," Sobeys president and chief executive Bill McEwan told a conference call with financial analysts.
Canada's second-biggest grocery chain already has gas bars at some of its Atlantic stores. However, this deal will give the company a strong presence in the Quebec market as well, Sobeys' parent company Empire Company Ltd. (TSX:EMP.A) said Thursday.
"This is an exciting opportunity for us to grow our existing retail gas operations while leveraging our significant wholesale and convenience business to better serve our customers," McEwan said.
He said the company's wholesale distribution business will fit well with the gas stations and associated convenience stores and pointed to the cross-promotional opportunities between the gas stations and its grocery stores.
McEwan also noted that both Shell and Sobeys participate in the Air Miles customer loyalty program.
Empire already had about 40 stations in Atlantic Canada as well as a handful of convenience stores in Quebec.
Roughly 80 per cent of the stations being acquired are in Quebec with the remainder in Atlantic Canada and most also include convenience store operations. Under the deal, the stations will continue to operate under the Shell banner and the big oil company will supply the gasoline sold at the fuel outlets.
Financial terms of the transaction were not disclosed.
David Saint-Laurent, general manager of Shell's retail business in Canada, said the company remains committed to the retail side of the business. After the sale, it will still operate about 1,350 gasoline stations from British Columbia to Ontario.
"In the rest of the country we will continue to invest in new sites," Saint-Laurent said.
Shell closed down its largest Canadian refinery in Quebec two years after rejecting potential offers for the 76-year-old operation in east-end Montreal. The company also converted the business to a fuel depot as part of an efficiency drive.
Many integrated oil companies — from Imperial Oil (TSX:IMO) in Canada and its U.S. parent Exxon Mobil Corp. (NYSE:XOM) have been selling parts of their retail networks to focus on core production and refining operations, which require huge amounts of capital.
This summer, Montreal-based convenience store chain Alimentation Couche-Tard acquired 33 On the Run gas bars from Exxon Mobil in southern Louisiana for an undisclosed price.
In Shell Canada's case, the Calgary company is spending billions of dollars to expand its Athabasca oilsands mine and is looking at other potentially expensive energy projects.
While Sobeys did not disclose the price it is paying for the Shell stations, the grocery chain will use existing cash to finance the purchase.
BMO Capital Markets analyst Peter Sklar said the Shell gas stations should be "a good fit" with Sobeys' existing gas and convenience store operations in the region, but noted the significance of the deal was not clear as neither the financial results of the locations nor the purchase price were disclosed.
The deal came as its parent, Empire, reported a profit, net of a minority interest, of $78.1 million or $1.15 per diluted share for the latest quarter.
That compared with a profit of $142.9 million or $2.09 per diluted share a year ago when earnings were boosted by a $81.3-million gain on the sale of its stake in the Wajax Income Fund.
Excluding one-time items, Empire reported a profit of $74.6 million or $1.10 per diluted share for the quarter ended Nov. 5, compared with a profit of $69.9 million or $1.02 per share a year ago.
Empire, which owns real estate as well as the Sobeys grocery store chain, reported sales of $4.04 billion in the quarter, up 3.4 per cent from $3.9 billion in the same period a year earlier.
Same-store sales increased 1.9 per cent compared with the same quarter last year.
Earnings from the Sobeys grocery stores totalled $68.5 million, up from $59.7 million, while Empire's real estate and other operations totalled $9.6 million, down from $83.2 million a year ago when the Wajax stake was sold.
Empire shares closed down were down $1.17 at $60.83 in trading on the Toronto Stock Exchange on Thursday.
Sobeys employs more than 95,000 people and owns or franchises more than 1,300 stores across Canada under retail banners that include Sobeys, IGA, Foodland, FreshCo, and Thrifty Foods.
Shell Canada, with 8,200 employees, is one of the country's largest integrated oil and gas companies, with major operations in the northern Alberta oilsands. The company is also a big natural gas producer, liquefied natural gas developer and chemical plant operator.
Before the Sobeys deal, Shell Canada ran about 1,600 Shell-branded gasoline stations across the country as well as refineries in Alberta and Ontario.
The company is a wholly owned unit of Royal Dutch Shell Group, one of the world's biggest energy producers, and holds nearly a third of the parent company's worldwide energy resources.