February 20, 1996

TOSCO TO BUY CIRCLE K CONVENIENCE STORE CHAIN FOR MORE THAN $900 MILLION

PHOENIX (AP) -- Tosco Corp., a $7 billion independent refiner seeking to become a major gasoline marketer, is buying Circle K Corp., owner of one of the nation's largest convenience store chains -- most of them with gas pumps.

The agreement announced Friday provides for a payment of $710 million in cash and stock, plus the assumption of Circle K debt, raising the value of the deal to more than $900 million.

On the news, Circle K stock shot up almost 37 percent, soaring $7.75 a share to $28.87 on the New York Stock Exchange. Tosco was off 25 cents at $43.25 a share.

Tosco, based in Stamford, Conn., will acquire nearly 2,000 Circle K outlets that sell gasoline, and convert 130 convenience stores it owns and operates to the Circle K brand.

"Circle K's superior image, its advertising support and buying power offer a significant advantage over simple unbranded operations," said Thomas D. O'Malley, Tosco's chairman and chief executive officer.

The expansion into gasoline retailing should provide some financial stability for Tosco, according to an industry analyst.

The refining business can be volatile with earnings often tied closely to changes in crude oil prices, said Thomas Lewis, who follows oil companies for Duff & Phelps Equity Research in Chicago,

Circle K will retain a large degree of autonomy and keep its corporate headquarters in Phoenix, said John Antioco, the chairman and CEO of the chain.

"For all practical purposes, this will be Tosco's retail headquarters," Antioco said. "They were not really buying our assets, but our retail expertise."

The deal has the backing of both companies' boards but awaits approval from shareholders and regulators. The companies said they expect the merger to be completed by midyear.

Circle K operates about 2,500 convenience stores in 28 states, primarily in the Sunbelt.

Antioco said he anticipates no significant layoffs at the management or store levels in the combination, and will remain at the helm of Circle K.

The company is recovering from serious financial problems. In 1990, when it had 4,500 stores in 35 states, it sought Bankruptcy Court protection from creditors. Antioco replaced longtime chairman Karl Eller in 1991 and Circle K emerged from its court-supervised reorganization in 1993. It had $3.6 billion in revenue last year 1995.

"Circle K straightened a lot of the past problems out," said Lewis, the analyst.

Under the deal, Circle K shareholders affiliated with Investcorp SA, which owns about 71 percent of Circle K's outstanding stock, will get cash and stock for their shares. Other Circle K shareholders will get stock.

The value each group gets would depend on Tosco's share price. At Tosco's closing price Thursday of $43.50 a share, before the deal was announced, the companies said the Investcorp group would get cash and stock valued in aggregate at $28.55 a share, while the other shareholders would get Tosco shares valued at $30.55.

The merger with Tosco will not affect Circle K's agreement with Unocal 76 to sell its gasoline in Arizona and Nevada, Antioco said. Gasoline accounts for roughly 50 percent of Circle K's revenues.

Tosco sells gasoline under the BP brand at about 1,000 outlets in nine Western states. It has a refinery near Bellingham, Wash.

Antioco says that together, the companies will operate about 4,000 retail outlets, adding: "The combination will be the strongest retail-independent refiner operation in the United States."