In The News

Flying J: merger vs independence

The “drop dead date” for the merger of Flying J and Pilot Travel Centers, originally set as March 31, has been extended to April 30.

After the drop dead date, neither party has any obligation to complete the merger.

In addition, the exclusivity period was also extended during which time Flying J agrees not to have discussions with other acquirers and/or investors.

It appears that the merger is all ready to go.

Due diligence has been completed, the transaction documents are drafted, the specified consents from ConocoPhillips and Shell Oil have been received, over $2 billion in financing has been arranged and the plan of reorganization filed with the Bankruptcy Court in Delaware has been approved by the creditors.

There is just one not-so-minor detail that stands in the way: the approval of the government’s antitrust authorities.

Customers, competitors, suppliers and the government are concerned that the new combined entity will be the 800-pound gorilla with more than 600 locations, $20 billion in revenue (depending on the price of fuel), $700 million in operating profits and a dominant 20-percent market share of the “on road” diesel fuel market.

Both Flying J and Pilot agreed to work together to overcome the antitrust issues which are both national and local in scope.

For example, the combined entity may need to divest some of its locations because of the combined market dominance in a certain geographic area.

Of course, this may present an interesting opportunity for competitors to purchase quality locations at an attractive price.

While the merger may be an attractive opportunity for Flying J, a lot has changed since December 2008, when Flying J filed for bankruptcy, and July 2009, when it entered into a merger agreement with Pilot to merge their truck stop operations.

Since that time, Flying J has sold or refinanced a number of operations, including Longhorn Pipeline, oil and gas assets, the Bakersfield refinery and other miscellaneous assets.

Most importantly, Flying J’s truck stop business is reportedly doing very well, in large part because of management’s focus on maintaining the quality of its operations over the past 16 months.

This is not an easy task given the distractions and costs associated with a bankruptcy filing, especially given all the high priced lawyers billing by the hour, some of whom make more in an hour than truck drivers make in a week.

But today, Flying J is an excellent operating company with a crummy balance sheet, meaning that it has too much debt.

Flying J and its owners, principally the descendants of the founder and company employees, have an interesting dilemma.

Should Flying J complete the merger with Pilot and have their equity interest diluted to a 10-percent to 15-percent ownership interest in a company that dominates its market?

Or, should Flying J stay independent by working with the private investors and banks to refinance the company, which would allow the existing Flying J shareholders to retain control of their company?

What would you do?

Jack Humphreville can be contacted to comment on this article at [email protected] . He is also affiliated with Recycler Classifieds (www.recycler.com ). 

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