Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 6, 2014

 

 

Lehigh Gas Partners LP

(Exact name of registrant specified in its charter)

 

 

 

Delaware   001-35711   45-4165414

(State or Other Jurisdiction

Of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

645 West Hamilton Street, Suite 500

Allentown, PA 18101

(Address of principal executive offices, zip code)

(610) 625-8000

Registrant’s telephone number, including area code

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 7.01 REGULATION FD

At 10:00 AM Eastern time on August 7, 2014, the Partnership will be presenting information to analysts and investors during its scheduled earnings conference call regarding the sale of the General Partner to CST Brands. The accompanying slide presentation relating to the sale will be available on the Webcasts & Presentations page of the Partnership’s website at www.lehighgaspartners.com and is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS

The following exhibit have been filed or furnished with this report:

 

Exhibit
No.

  

Description

99.1    Presentation dated August 7, 2014, regarding the sale of the Partnership’s general partner.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Lehigh Gas Partners LP
    By:   Lehigh Gas GP LLC
      its general partner
Dated: August 6, 2014     By:  

/s/ Mark L. Miller

      Name:   Mark L. Miller
      Title:   Chief Financial Officer


EXHIBIT INDEX

 

Exhibit
Number

  

Description

99.1    Presentation dated August 7, 2014, regarding the sale of the Partnership’s general partner.
EX-99.1
CST Brands and Lehigh Gas Partners
Investor Conference Call
CST Brands’
Strategic Acquisition of
LGP’s General Partner and IDRs
August 7, 2014
Exhibit 99.1


Safe Harbor Statements
Safe Harbor for Forward-Looking Statements
Statements
contained
in
this
presentation
that
state
the
companies’
or
their
respective
managements’
(CST
Brands,
Lehigh Gas Partners or affiliates) expectations or predictions of the future are forward-looking.  The words “believe,”
“expect,”
“should,”
“intends,”
“estimates,”
and other similar expressions identify forward-looking statements.  It is
important to note that actual results could differ materially from those projected in such forward-looking statements. 
Statements regarding the proposed transactions between CST Brands and Lehigh Gas Corporation and associated
parties, the timing and costs related to such transaction, the ability to achieve strategic or financial results associated
with
the
transactions,
future
opportunities
and
other
statements
related
to
CST
Brands
and
Lehigh
and
these
transactions also may constitute forward-looking statements.
For more information concerning factors that could cause actual results to differ from those expressed or forecasted,
see CST Brands’
and Lehigh Gas Partners LP’s filings with the Securities and Exchange Commission (“SEC”), including
the Risk Factors in the most recently filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q as filed with
the
SEC
and
available
on
CST
Brands’
website
at
www.cstbrands.com
,
the
Lehigh
Gas
Partners
LP
website
at
www.lehighgaspartners.com
or
the
Securities
and
Exchange
Commission
website
at
www.sec.gov.
If
any
of
these
risks
or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly
from what we projected. Any forward-looking statement you see or hear during this presentation reflects our current
views
as
of
the
date
of
this
presentation
with
respect
to
future
events.
Neither
CST
Brands
or
Lehigh
Gas
Partners
undertake any obligation to publicly update or revise these forward-looking statements for any reason, whether as a
result of new information, future events, or otherwise.
1


CST Brands and Lehigh Gas Partners
Overview
CST Brands
Based in San Antonio, Texas
Ranks 266 in Fortune 500
One of the largest independent retailers of motor fuels and
convenience merchandise in North America
Strong urban footprint of nearly 1,900 locations throughout nine
southwestern states in the U.S. and six provinces in eastern Canada
CST Corner Stores sell primarily Valero sourced fuels and signature products such as Fresh Choices
baked and packaged goods
In Canada, CST is the exclusive provider of Ultramar fuel in Canada, and its Dépanneur du Coin and
Corner Stores sell signature Transit Café
coffee and pastries
Lehigh Gas Partners (LGP)
Based in Allentown, Pennsylvania
A leading wholesale distributor of motor fuels and owner and
lessor of real estate used in the retail distribution of motor fuels
Distributes fuel to nearly 1,100 locations and owns or leases more
than 625 sites in sixteen states primarily across the eastern U.S.
Distributes several major brands of fuel, including Exxon, Mobil,
BP, Shell, Chevron, Sunoco, Valero, Gulf and Citgo
CST Brands
Lehigh Gas Partners
2
* -
LGO –
Lehigh Gas Ohio, LLC is currently a private
affiliate of LGP
U.S. company operated = 1,044
U.S. dealer/agents = 3
CAN company operated = 279
CAN dealer/agents = 498
CAN cardlock = 73
Company operated = 87
Independent dealers = 445
Lessee dealers = 255
Commission agents = 68
Affiliated dealers (LGO*) = 238


Transaction Overview
3
Post Closing Result:
Lehigh Gas
Partners (LGP)
General Partner
(GP)
Lehigh Gas
Corporation (LGC)
A
B
C
A
B
C
Joe Topper
*“IDRs”
are Incentive Distribution Rights that provide for incentive cash distributions from LGP as its limited partner distributions per unit increase
IDRs*
CST purchases the General Partner of LGP for $500k in cash
CST purchases the IDRs* ($16.5 million in cash and the remainder
in CST common shares
at approximately 2.04 million shares, a combined current value of $85 million)
At closing, CST will elect Joe Topper to the Board of CST, and he will remain as LGP’s
President and CEO
CST owns 100% of the GP & IDR interests in LGP
CST will control LGP through its 100% ownership of the GP
Topper and other insiders will continue to own approximately 44%
of the LP interests in LGP
Public ownership of LGP units will continue to be approximately
56%


Post Closing Structure
General Partner
Lehigh Gas
Partners LP
NYSE: LGP
Operating
Subsidiaries
CST Brands
NYSE: CST
100%
IDR
Interest
Topper and
other insiders
Public
Unitholders
44%
Ownership
Interest
100%
Ownership Interest
4
56%
Ownership
Interest
LGP will to continue to be a separate, publicly traded MLP
No change in ownership of common or subordinated units
of LGP as a result of the transaction
CST Brands expects to receive an ownership interest in LGP
common units over time as partial consideration for drop-
down assets
100%
Controlling
Interest


CST Brands
Provides CST with a growth vehicle to fund future expansion
Provides CST Brands with infrastructure for the development and maintenance of a
wholesale fuel supply business, new store growth and a front seat in a consolidating
industry
Lehigh Gas Partners
Transforms LGP into a “sponsored”
MLP
Provides LGP with more than 5 years of drop-down opportunities from CST’s U.S.
wholesale fuel supply business and New-To-Industry (NTI) real property assets
“Best”
of both organizations –
c-store operations, wholesale fuel distribution
and M&A expertise
Enhances both organizations’
goals of increasing total shareholder and
unitholder returns
Strategic Rationale Overview
5


Provides CST access to the MLP capital markets to fuel organic growth
Partially monetizes the multiple disparity between C-corp and MLP structures
CST acquires IDRs that should increase in cash flow in the coming years
IDRs reach the “high splits”
sooner than if CST Brands had created its own MLP
capital structure
CST benefits from value creation at LGP through its ownership of
common units
received as partial consideration for asset drop-downs
CST receives cash flow from distributions on its LGP common units
Positions CST and LGP to expand their core operations through third-party
acquisitions
Flexible capital structure allows for cash or equity consideration to sellers
Management team experienced in executing M&A transactions
CST avoids the market risk, expense and management time associated with a
potential MLP IPO
Increases the geographic and brand diversity of CST’s current portfolio
Benefits for CST Shareholders
6


Provides for both greater certainty of and an increased rate of future
distribution growth
Greater certainty of drop-down asset acquisitions versus third-party acquisitions
Creates an enhanced platform with which to pursue third-party acquisitions
jointly with CST
Lessens over time LGP’s concentration with LGO (a private affiliate) and
increase its concentration with CST (a publicly traded company)
Increases the geographic and brand diversity of LGP’s current portfolio
Benefits for LGP Unitholders
7


Future Potential Asset Drop Activity
Between CST and LGP
CST Brands, Inc.
NYSE: CST
General Partner
and IDRs
Lehigh Gas Partners LP
NYSE: LGP
New construction (NTI) of real
property is dropped (sold) to LGP
at fair market value
CST receives cash (at least 75%)
and LP units (maximum of 25%)
Equity in CST’s Wholesale Fuel
Supply business is dropped (sold)
to
LGP
(over
time
5+
years)
at
fair market value
CST receives cash (at least 75%)
and LP units (maximum of 25%)
CST receives on-going income
from distributions related to the
IDRs and from the LP units CST
received in the drop (sales)
transactions in A and B above
100% ownership interest
100% controlling interest
B
C
A
A
A
B
B
C
8


Post Closing Network Footprint*
9
CST
Brands
(U.S.)
-
1,047
sites
CST
Brands
(CAN)
-
850
sites
Lehigh
Gas
Partners
(LGP)
-
1,093
sites
*Pro Forma site count as of 06/30/14
Pro forma combined entities to have a coast-to-coast national network of assets


Post Closing Fuel Brands
and Statistics*
10
* Statistics
include
LGP
acquisitions
pro
forma
as
of
06/30/14.
Total
site
count
includes
both
retail
and
distribution
sites.
CST Before
CST / LGP Combined
CST Brands
Lehigh Gas
Partners
CST/LGP
Combined
$12.8
$3.5
$16.3
Annual Volume (gallons in
billions)
2.9
1.0
3.9
Total Sites
1,894
1,093
2,987
Network Footprint (U.S. states
and Canadian provinces)
15
16
31
Creates a platform with meaningful relationships with multiple major oil suppliers
Annual Revenues ($ in billions)


CST Operations and Investments
Potential Annual Cash Flow
Existing:
multiplied by 3-5 cents per gallon*
$57 -
$95 million*
Annually incremental:
investment per year on 30 U.S. NTI locations (2013 est.) multiplied
by 7.5% capitalization rate
$7.5 million
Annually incremental:
NTI locations multiplied by 3-5 cents per gallon
$3 -
$5 million
11
CST Brands’
“MLPable”
Asset
Drop-Down Options
* -
Existing fuel supply is expected to be dropped (sold) to LGP over a 5+ year timeframe
1.9 billion gallons of fuel distributed through U.S. in 2013
$100 million in real property capital
100 million of gallons per year on 30 U.S.
The following is for illustrative purposes only and is subject to the LGP Conflicts
Committee and CST Board approval
CST expects to drop-down assets for cash (minimum 75% of consideration) and
LGP common units


Post Closing Operational
Responsibilities
12
CST U.S.
Operations
CST Brands, Inc.
Lehigh Gas
Partners LP
CST manages and runs all C-
store operations
CST manages merchandising in
all C-store locations
All employees are CST
employees –
sharing one
culture and one mission –
to
Delight More Customers
Everyday
CST U.S. will continue to
receive income from the U.S.
Wholesale Fuel Supply
business it has not dropped
(sold) to LGP
CST creates shareholder value from:
LGP manages all U.S.
wholesale fuel operations
LGP manages the U.S. dealer /
agent network
LGP leases real property and
receives lease income to both
CST operated stores, that have
been dropped (sold) into LGP,
and third parties
U.S. C-Store operations
Canadian operations (no changes)
Cash flow from the drop-downs
(sales) of CST’s Wholesale Fuel Supply
business (over a 5+ year time frame)
Cash flow from drop-downs (sales) of
newly constructed real property
On-going income and cash flow from
IDRs and the common units CST
receives as partial consideration from
the above described asset drop-
downs (sales)


Other Deal Considerations
Expected close:  Early fourth quarter 2014
Both CST and LGP’s credit facilities and banks will require consent / modification as
a condition to close
Other customary conditions to closing
CST Brands’
Tax Matters Agreement restrictions (outlined in CST’s 8K filed on
May 1, 2013) still apply
The following restrictions expire on May 1, 2015
o
Restrictions on sales of assets existing on spin date (May 1, 2013)
o
Restrictions on stock repurchases (except certain open market repurchases)
o
Restrictions on stock issuances
o
Restrictions on corporate restructuring
Form and timing of this transaction complies with the Tax Matters Agreement and
these short-term restrictions will not delay implementation of our long-term
strategic plans
13
This transaction has the potential to “unlock”
$300 -
$500 million
in
value for CST shareholders while also providing LGP unitholders the
benefits of a sponsored MLP structure