Arko is not giving up in its battle to acquire truck stop giant TravelCenters of America, which has said repeatedly it wants to be bought by oil giant BP.
In a letter sent to TA (NASDAQ: TA) management Monday and filed with the Securities and Exchange Commission, convenience store operator Arko did not increase its bid price of $92 per share, $6 more than the BP offer.
But the language was harsher than in previous communications from Arko to TA since it was disclosed in late March that Arko (NASDAQ: ARKO) had made an offer to buy TA that was rejected. That semi-disclosure was made in a TA proxy statement that did not disclose the identity of the alternative bidder to BP (NYSE: BP), with Arko emerging later as the mystery company.
But the wording of the Arko letter suggests that since those conversations before the BP offer was announced, Arko and TA have not spoken.
“There can be no more excuses from the Board to immediately engage with ARKO and provide us access to the diligence information provided to BP,” Arko said in its letter. “We are available to meet at any time to answer questions of the Board, management, or your advisors so that you are in a position to validate the superiority of our proposal and so that ARKO and TravelCenters can enter into a merger agreement as soon as possible.”
But the Arko letter is not just a reiteration of the offer. A key point in TA’s rejection of Arko’s offer has been Arko’s credit rating, which is sub-investment grade, in comparison to the investment-grade credit rating of BP. In various statements, TA has said that is a significant weakness with the Arko offer, particularly in regard to SVC (NASDAQ: SVC), the real estate investment trust that owns the properties where TA’s travel centers are located.
In its latest letter, Arko offered to essentially be seen as investment grade through an arrangement it would make with an unidentified highly rated insurance company. “SVC now has the comfort of an investment grade counterparty for the lease term, fully alleviating any potential concerns around ARKO’s credit rating,” it said in the letter. It added that Arko would prepay $202 million in upfront lease payments, compared with the $188 million offered by BP.
Arko’s latest statement to TA is that it would “enter into a binding policy with a leading US insurance provider with an investment grade credit rating that is prepared to fully insure the lease payments pertaining to TravelCenters’ obligation to SVC over the 11-year lease term at the cost of Arko.” It said the credit rating of the insurer it ties up with would be equal to or more than A for S&P Global Ratings (NYSE: SPGI) and A3 for Moody’s (NYSE: MCO), grades that are several steps above the cutoff level considered investment grade on most ratings scales.
One analyst who has been following the Arko-TA-BP saga was not impressed with the latest Arko offer. “How many things are you going to gerrymander just to get this deal done?” he said, requesting anonymity. “You either have the credit or you don’t have the credit.”
The analyst said SVC “owns $3.5 billion worth of real estate and they want to collect rent checks on it. It’s important to their business.”
Ultimately, he added, Arko’s attempt to be seen as investment grade through a guarantee by an insurance company will not likely be considered equivalent to having an investment-grade credit rating. Arko’s credit rating is B+. S&P defines a rating of B, B+ or B- as sub-investment grade and “more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.”
“You have to appease SVC,” the analyst said of the challenge facing Arko. “SVC is going to simply come back with, ‘We like BP’s credit.’”
The actual entity that would be acquiring TA is BP Products North America. BP North America carries a credit rating of A- from S&P Global Ratings.
In its letter, Arko suggested its $92-per-share offer could increase. If TA would provide more “due diligence … Arko can potentially provide even more value than $92 per share in cash to TravelCenters’ stockholders.”
Arko’s letter contains what almost amounts to a plea. “We are just asking for the same information to allow Arko the opportunity to do so (possibly make a higher offer),” the letter says. “This is not asking the Board to deem today that our proposal is superior, but that it could lead to a ‘Superior Proposal.’”
The latest Arko letter said it would pay all termination fees that would kick in if the BP deal were withdrawn: $51.9 million to BP, $44 million to RMR (NASDAQ: RMR), which provides consulting services to TA; and a $90 million payment to SVC for “brand purchase.”
If Arko is going to prevail, it’s on a tight deadline: TA has said it expects the deal with BP to close May 15.
Although the BP offer is $86 and TA has said several times it is going to accept that price, some investors are still betting on a higher bid. At approximately 10:15 a.m. Monday, TA stock was up 0.79% to $87.89 and had traded at $88 earlier in the day.
TA did not respond by publication time to an email seeking comment. It has not made public statements beyond its filings with the SEC or press releases that are largely verbatim from what has been filed with the agency.
Late Monday, it filed a proxy with the SEC that was a copy of a letter sent Monday to shareholders, reiterating that shareholders should vote “yes” on the BP proposal and that not voting constituted the same as a “no” vote.
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