Southland Corp. Will Sell Chief Auto Parts, Several Other Units
Southland Corp., operator of the 7-Eleven convenience store chain, said Monday that it will sell its Chief Auto Parts stores and virtually all of its dairy and food-processing businesses to help pay off the mountain of debt associated with a $4-billion leveraged buyout.
The Dallas-based company will stick to the business it knows best: 7-Eleven--the nation’s largest convenience store chain with 7,600 outlets--and about another 1,000 such stores under different names. Southland also plans to keep its 50% interest in Citgo Petroleum, which supplies gasoline to the 7-Eleven stores that have service stations, and its food centers, which prepare ready-to-eat sandwiches and burritos sold at 7-Eleven stores.
The proposed leveraged buyout, to be undertaken by top management and the family that co-founded the 7-Eleven chain, was disclosed Sunday.
“To help pay a portion of the debt associated with this transaction, Southland intends to sell virtually all non-convenience store operations except its distribution centers, food centers and its 50% interest in Citgo Petroleum Corp.,” Jere W. Thompson, president and chief executive of Southland, said Monday.
After months of takeover rumors, the company said Sunday that it had agreed to be acquired by a private investment firm owned by the Thompson family, which co-founded Southland in 1927.
A tender offer began Monday for about two-thirds of Southland’s outstanding common stock at $77 per share and for all 2.5 million outstanding shares of convertible preferred stock at $90.27 per share. The common stock moved up $7.25 a share on Monday to close at $75.75 and the preferred rose $8.125 to close at $89.625.
The Thompson family said it has arranged for $2.73 billion in bank loans and $600 million in interim financing and is planning to refinance Southland’s $950 million in long-term debt. Southland officials would not say Monday how much they expect to raise from the sale of the businesses or when any sales would take place.
Analysts were not totally surprised. “I think that it’s the normal procedure,” said Fred E. Wintzer Jr., an analyst with Alex Brown & Sons, a Baltimore brokerage firm. “In a leveraged buyout,” he explained, “you borrow tons of money and then you sell off all the assets you can to reduce the indebtedness.”
Besides Chief Auto Parts, a convenience retailer of auto parts with 465 stores mostly in Texas and California, the sale would include Southland Dairies, one of the nation’s three largest dairy processors with 28 plants, and Reddy Ice, the world’s largest maker of ice cubes and crushed ice with nine plants in four states.
Wintzer said the decision to focus on the convenience stores, which contributed more than 90% of company revenue last year, made good sense.
SOUTHLAND AT A GLANCE
Dallas-based company is the nation’s largest convenience-store operator, primarily through its 7-Eleven chain. Other retail outlets include Quik Mart, Super-7 and Chief Auto Parts.
Year ended Dec. 31 1986 1985 1984 Revenue (billions) $8.6 $8.6 $8.0 Net income (millions) 200 213 160
Assets $747 million
Employees 67,200
Shares outstanding 48 million
12-month price range $44-$75.75
Monday close (NYSE) $75.75, up $7.25
