During a time when convenience store retailers seem to be exploring mergers and acquisitions left and right, signs are pointing to Brentwood, Tennessee-based Delek U.S. Holdings potentially being next up in the consolidation pipeline.

Delek operates 249 convenience stores in West Texas and New Mexico. A statement in the company’s fourth-quarter earnings report released on Tuesday said that Delek is “evaluating various options and opportunities around logistics and retail” as it looks to unlock shareholder value.

Following up on this statement during Delek’s earnings call Tuesday, President and CEO Avigal Soreq said that while he cannot provide too much information, the company is exploring how it can manage its assets and maintain its cash flow and earnings before interest, taxes, depreciation and amortization (EBITDA).

This comes during a period of decline for Delek’s retail operations. For the fourth quarter of 2022, Delek’s adjusted EBITDA was $7.8 million compared to $10 million in the prior-year period for its c-stores, according to its earnings report. This drop was primarily driven by reduced volumes and lower average margins between the two periods, the company said.

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“Our belief in retail is either you can go big all the way or you're almost not relevant.”

Avigal Soreq

President and CEO

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When a stock analyst on the earnings call asked if Delek’s core refinery business can stand alone and whether a separation of retail and logistics makes sense, Soreq noted that any transaction Delek undertakes will consider its refinery business and will not be done simply “to check the box.”

"We are not going to do any transaction that will put us [at] risk for the total cash flow of the company,” Soreq said during the call.

Only two months into 2023, consolidation has become one of the main talking points around the c-store industry. Since the start of the new year, reports have surfaced that both EG America and Kum & Go are exploring a sale of their c-store assets, and in February, BP acquired TravelCenters of America’s 281 sites for $1.3 billion. 

Challenges like inflation, digital transformations, electrification and tight labor pools have made running a c-store business more difficult than in the past, which has created more question marks for how the future will unfold. These headwinds have made the current landscape an opportune time for c-store M&A, experts say.

If Delek is looking to offload its retail assets, it would align with what some investors already wanted to see from the company. In January 2021, petroleum refiner CVR Energy — which had a 15% stake in Delek at the time — urged the company to sell its retail assets, among other business changes, as part of a “desperately” needed new direction. Delek’s leadership denied this request.

Delek’s current interest in a potential move — whether a sale or an acquisition — can be traced back to November 2022. In its third-quarter earnings report, the retailer said it took various steps towards its “key priorities,” including hiring current Executive Vice President of Corporate Development Mark Hobbs — who formerly worked for Morgan Stanley and CitiBank — and began working with bankers “to advise on potential strategic options.”

A stock analyst on Delek’s Tuesday earnings call noted that despite these initiatives, Delek hadn’t previously mentioned its retail footprint being part of potential strategic options. In response, Soreq said that “everything is on the table.”

“Our belief in retail is either you can go big all the way or you're almost not relevant,” Soreq said. “And we hope — and we are certain — that you will be very proud and happy with the deal that we are going to end up showing you.”

Any potential move for Delek would aim to drive all of the company’s business units and shareholder value, Hobbs said during the earnings call.

“At this point, we don't have anything to announce, but obviously when we do, we'll be very transparent with everybody,” he said.

Asked to comment on whether the company might be selling its c-stores looking to acquire, a Delek spokesperson said it is “currently evaluating various options and opportunities around both logistics and retail as part of our strategy to unlock value for our stakeholders.”