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Speedway buys Hess, doubles its size

A $2.8 billion deal means a major Clark County employer will double its size to become a top convenience store chain in the United States.

Marathon Petroleum Corp. announced Thursday its Enon-based subsidiary, Speedway, has reached an agreement to acquire Hess Retail Holdings.

Speedway will become the largest owned-and-operated convenience store chain in the U.S. by revenue and the second-largest by number of stores once the deal closes.

“This acquisition will be transformative for MPC and Speedway as it will significantly expand our retail presence from nine to 23 states,” said Marathon President and Chief Executive Officer Gary R. Heminger in a statement.

Speedway has 19,000 employees and when the acquisition is complete, it will have about 34,000. About 800 of them work at the Enon headquarters.

“We’ve been looking at opportunities to expand our retail presence and this is just a great fit for our company. We have the infrastructure to support it, meaning that we have the refining, the terminals to support the additional operations,” said Angelia Graves, a Marathon spokeswoman.

The deal gives Speedway locations throughout the East Coast and Southeast.

The company will pay $2.3 billion in cash and an estimated $230 million of working capital and $274 million of capital leases.

Speedway is the second largest for-profit entity and the sixth largest employer in Clark County. It currently has about 1,480 stores.

Hess, which is based in New York City, is the largest operator of convenience stores along the East Coast. It is also the fifth largest in the U.S. by number of company-operated sites and has 1,256 stores in 16 states.

Hess CEO John B. Hess said in a statement the deal allows Hess to become a “pure-play exploration and production company.”

The deal must meet closing conditions and is expected to be completed by the end of this year.

Hess employees were notified about the acquisition Thursday morning.

Speedway will begin re-branding Hess stores to the Speedway identity over the next three years, Graves said, beginning next year.

The combined business will have 2013 projected revenues of more than $27 billion, according to MPC.

This move and the recent merger of Susser and Sunoco about two weeks ago shows that the value of convenience stores is strong, said Jeff Lenard, National Association of Convenience Stores.

“The traditional feeling was that most stores are strong regional players, they don’t want to outstrip distribution. But more are adding distribution, and could be looking to be national players, like 7-Eleven,” Lenard said.

Patrick Dehaan, an analyst with Gas Buddy, said the acquisition is likely going to be good for motorists.

“Speedway shows competitiveness, especially with the loyalty rewards program that will likely expand to Hess,” he said.

Hess has a winning strategy at the pump, Dehaan said, earning a penny more than Speedway in cases, so Speedway could look to Hess’s strategy to grow revenue, or vice versa.

“Speedway is a price leader, even driving gas prices in some markets,” he said. “It will remain to be seen whether that strategy will play out in Hess territories.”

The additional retail stores will allow the company to increase its cash flow, Graves said, and bring in new customers to its Speedy Rewards program, which already has 4 million members.

“We’ve looked at different ways to grow our retail business. We’ve been doing new builds in stores in Tennessee and Pennsylvania over the last couple years. We’ve invested a lot more capital so this is another way we’ve looked at significantly growing Speedway business,” she said.

Horton Hobbs, vice president of economic development at the Greater Springfield Chamber of Commerce, said the deal is great news for Speedway and Clark County.

“Anytime a headquarters in your community continues to grow the way they have grown, that has a ripple effect in the entire community,” he said. “This is a tremendous announcement because they are increasing their share in their industry and that bodes well for our community.”

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