By choosing to spin off its retail business rather than sell it, it can't be said Hess (NYSE: HES ) is taking the road less traveled, but then again, all public equity activity routes were pretty well trod last year, though initial public offerings in the U.S. seemed particularly robust as they jumped 40% to $59.3 billion.
While analysts don't expect to see that same level of activity this year, the same forces that drove IPOs up in 2013 such as an improving economic climate fueling a rising stock market are still present indicating that Hess may realize a successful offering for its retail business.
The oil exploration and production company is the largest convenience store owner on the East Coast with 1,258 fuel and food outlets, and is also the largest franchisee of Dunkin Brands Dunkin' Donuts stores with more than 650 shops and more than 140 more operated by other franchisees. It also operates a number of Wendy's, Dairy Queen, and Bojangles restaurants at its travel plazas while it recently undertaking a partnership with Burger King Worldwide that it sees growing in the future.
Hess began transforming itself into a pure-play E&P shop last year having sold its terminal network to Buckeye Partners, closed its New Jersey refinery, and agreed to exit the energy marketing business. It raised about $7.8 billion last year by shedding assets, which doesn't include the most recent announcement that it was selling its Indonesian assets for $1.3 billion.
When the discussion of shedding the retail operations first arose, it was speculated Hess might try to sell off the assets, with BJ's Wholesale or Marathon Petroleum (NYSE: MPC ) rumored as possible buyers. BJ's has around 200 wholesale clubs in 15 eastern states with about half of them featuring gas stations while Marathon operates about 1,470 stations through its Speedway subsidiary.
Another possible suitor is Alimentation Couche-Tard (NASDAQOTH: ANCTF ) , one of the largest convenience store operators in North America, second only to 7-Eleven. It has more than 6,200 locations operating under the Couche-Tard, Mac's, and Circle K brands while also having nearly 2,300 fuel and retail stores across Europe and Russia that it bought from Statoil (NYSE: STO ) in 2012.
Although Hess is keeping the door open for a potential buyer to take over the retail operations, analysts believe Hess can raise more money via a spinoff, as much as $1.5 billion, which would also have the benefit of being tax-free.
Hess will accomplish the separation of the retail business by transferring its assets and liabilities to Hess Retail, which will then distribute 100% of the shares of Hess Retail's common stock to its shareholders. Following the distribution, Hess Retail will be a publicly traded company and is expected to trade on the NYSE under the symbol HRE.
With plenty of opportunity for the retail business' further expansion, it seems the Hess spinoff could be a big enough one for investors to drive a truck through.
The coming energy boom
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.