Strange timing for speedy sale of Topaz

Emmet O'Neill, the gregarious nephew of Denis O'Brien and chief executive of the billionaire's Topaz group, practically bounced into yesterday's announcement of the sale of the group to Canadian retail giant Alimentation Couche-Tard for a price speculated to be north of €450 million.

When congratulated for keeping the deal a secret, O’Neill smiled and said: “We like to keep things under the radar. That’s how we roll.”

And why wouldn’t the 36-year-old be happy? His uncle sold him a 10 per cent stake of the business in the summer for a bargain €3.5 million.

With 35 per cent of the market, the Topaz group supplies or owns 464 fuel stations and has 2,000 staff. So how much have O’Brien and his nephew made from the deal?

Minority investor

O’Brien appears to have sold the business for more than twice what he paid for it, although his total return is unclear as Topaz has refused to outline its debts.

Already a minority investor, O’Brien paid €150 million to IBRC liquidators two years ago to acquire €305 million of debt in Topaz and its Resource Investment property arm. This was an effective writedown of €155 million.

His outlay is unlikely have ended at €150 million, as Topaz also embarked on a revamp of its network, presumably financed by its shareholder.

According to a statement yesterday to the investors of Couche-Tard, which operates more than 15,000 outlets globally, it has “agreed” with Topaz not to reveal the value of the deal announced this week.

As we know from his recent decision to pull Digicel’s €2 billion New York flotation, O’Brien will not sell an asset if he feels it is undervalued. Therefore, we can assume he at least got market value for the group, based upon its earnings.

Its most recent accounts show operating earnings of €26 million. It also pays €15 million in rent to Resource, according to its accounts. Resource’s cost base is unclear, but let’s assume combined earnings of at least €35 million.

Applegreen, Topaz's main rival, floated this year at 10 times earnings; Couche-Tard trades at about 12 times.

So the business, before the addition of Esso earlier this week, must have been be worth about €350 million-€400 million.

In a deal that closed on Tuesday, Topaz also paid a reported €75 million for Esso. Therefore, together with Resource and Topaz Energy, the combined group was worth in excess of €450 million.

Topaz Energy Group’s balance sheet indicates bank loans of about €20 million, which would need to come off O’Brien’s return. There is likely much more debt in Resource, however. If Topaz pays it rent of €15 million, the properties are probably worth at least €250 million, and highly leveraged.

All told, O’Brien is probably up more than €100 million on the Topaz deal. Not bad for two years’ work. O’Neill’s 10 per cent, meanwhile, looks an incredible deal. What is unclear, however, is why O’Brien chose to sell now. As recently as two months ago, O’Neill was talking about expanding Topaz abroad.

Restructuring

The hard work of the restructuring has been done. The patient has only just healed. Why would O’Brien not sit back and reap a solid return from the market leader in retail fuel in the fastest-growing economy in Europe?

O’Neill, who will soon leave the business, seemed unable to satisfactorily answer this question at yesterday’s press conference, responding only that Couche-Tard is a “better fit” than its current owners. Perhaps O’Brien needs the cash elsewhere in his empire.

The deal appears to have been done in a hurry. Topaz, for example, is still in the middle of developing private brands for its Re.Store retail outlets. But after the sale closes in the spring, that brand will disappear as Couche-Tard changes the stores to Circle K.

As O’Neill swigged from his Re.Store water, the deal’s timing appeared ever stranger.