TravelCenters of America has again rejected the bid of convenience store operator Arko, citing debt ratings of its respective suitors to stick with the bid by BP to acquire the truck stop chain.
Arko revealed itself as the unidentified “Party G” that TA (NASDAQ: TA) said Friday had made a last-minute bid that on paper surpassed the purchase proposal of BP. The BP (NYSE: BP) bid is for $86 per share; Arko (NASDAQ: ARKO) bid $92 per share.
TA, in its proxy statement filed with the Securities & Exchange Commission last week, said it was rejecting the ostensibly higher offer, calling the overall BP bid “superior.”
An aspect of both bids is that there is a complex relationship between TA and Service Properties Trust (SVC). TA leases many of its outlets from SVC, just as Arko leases many of its properties from Oak Hill Capital, a private equity firm with extensive real estate holdings. Additionally, Arko management has used the financial backing of Oak Hill to make many of its acquisitions in the convenience store industry.
On the latest earnings call with analysts, Arko’s chairman, president and CEO Arie Kotler boasted that one of the reasons the company has been successful in making acquisitions is that the “agreement with Oak Street continues to give us an advantage in our ability to move quickly and get deals done.”
But in its latest statement released Tuesday, TA noted that as an indirect party to any transaction, SVC had “minimum credit criteria for the new tenant and guarantor of the leases between TA and SVC.” And that criteria, TA said, was that the buyer needed to have a credit rating of BBB (the S&P Global Ratings scale) or Baa2 (the Moody’s scale, and those two ratings are considered equivalent).
Arko’s ratings are B+ from S&P and B2 from Moody’s, which as the statement from TA noted, is a “sub-investment credit rating … several notches below BBB/Baa2.”
BP carries a credit rating of A2 from Moody’s and an A- from S&P. While those two grades are not equivalent — the A2 is considered one notch stronger than the S&P rating — those two marks are well into investment grade for both ratings agencies. The Arko ratings are several notches below investment grade.
TA said the process by which BP was chosen involved “multiple potential buyers,” many of which were identified in the recent TA proxy only by letters, such as Party G, which turned out to be Arko. The directors were looking for a buyer that “could close with cash on hand or otherwise had committed financing.”
The TA statement Tuesday also noted that SVC and The RMR Group (NASDAQ: RMR) have both agreed to vote their shares in favor of the BP acquisition. SVC owns 7.8% of TA and RMR, which TA says provides “business management services” for it, owns 4.1% of the outstanding shares.
One notable aspect of the Arko bid of approximately $1.4 billion is that the company only has a market capitalization of about $1 billion. It is seeking to make an acquisition that will more than double its size. The total BP offer is about $1.2 billion.
TA said in its statement that it expects to close the acquisition by midyear.
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