US fund to invest $62.5m in Arko's GPM

Arie Kotler, photo: PR

The private fund will buy participation units of the gas station partnership from Arko and US investment fund DK.

Arie Kotler continues to seek to create value in investment firm Arko Holdings Ltd. (TASE: ARKO), controlled by him. Yesterday, Arko reported that on the weekend, a US investments fund signed a non-binding letter of intent for the acquisition of GPM partnership participation units for $62.5. The partnership is controlled by Arko.

GPM operates in the US, in the field of gas station and convenience stores. The private fund will buy participation units from Arko and from US investment fund Davidson Kempner (DK). The buying fund, whose name was not disclosed, might invest a further $30 million directly in GPM in the future, in order to help expand the operations of the partnership, which operates hundreds of gas stations and convenience stores in the US (mainly on the East Coast).

According to the tentative agreement between the parties, the private fund will buy all Arko and DK's new preferred participation units in GPM for $47.5 million. The new units provide a $37.5 million repayment of the investment and an 8.75% annual return. They are equally divided between Arko and DK and therefore each will receive $23.75 million. After the completion of the deal, the conditions of the preferred units will be changed and they will represent 7.5% of the value of rights in GPM's capital, providing their owners with preferred rights in divided distribution, as well in other matters.

At the same time, the private fund will buy further 2.5% regular GPM participation units from DK, for $15 million. After the sale is completed, DK will control only 22.5% of the regular units, while Arko will continue to control 75%.

Arko said that the purchase deal reflects a $630 million company valuation for GPM, while it acquired control in 2011 for only $30 million, and that at the end of June the balance of the investment in GPM in its books was $46 million. Arko also said that the capital gain that it will post from the sale of the preferred units is expected to give rise to $1.8-3.3 million in tax expenses.

Arko Holdings is traded on the Tel Aviv Stock Exchange at a market cap of NIS 740 million and is controlled by Arie Kotler (42.75%) and Morris Willner (41.6%). In response to yesterday's announcement, Arko's share price rose 5%, completing a jump of over 80% in the past three years and over 800% since October 2010. At the end of June, the company reported shareholders' equity of $133 million.

A serial gas station buyer

Arko also reported that it had been notified by the DK fund that the latter was considering submitting an offer to purchase Arko shares totaling almost $10 million, in order to compensate for its diminishing holdings in GPM. The price of this offer has not yet been determined.

Kotler, who has been leading Arko as both chairman and CEO, said yesterday, "The fund's entry into GPM at a valuation of $630 million (NIS 2.4 billion) is indicative of the company's achievements in the past few years and of the results of the implementation of the strategic plan, which focuses on expanding GPM's operations and turning it into a leading fuel and convenience store company throughout the US."

At the end of June 2016, GPM operated 713 sites throughout the US, which included convenience stores and gas stations, and provided fuel for 133 additional stations operated by others. Since then, it has significantly expanded the number of its sites.

Published by Globes [online], Israel business news - www.globes-online.com - on October 31, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Arie Kotler, photo: PR
Arie Kotler, photo: PR
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