Pilot to Buy Flying J Truck Stops

This story appears in the July 20 print edition of Transport Topics.

Bankrupt Flying J Inc. last week sketched out a plan to sell its truck-stop operations to Pilot Travel Centers, which would add to Pilot’s lead as the nation’s largest truck-stop network.

Pilot has about 300 locations, and absorbing Flying J’s network would add about 250 facilities. One competitor said it feared the combined company would be able to compete more aggressively for fuel sales.

The proposed merger, announced jointly by the companies on July 14, includes only Flying J’s truck-stop operations and not Flying J’s oil refining business or its Transportation Alliance Bank.

“After a careful and exhaustive review of the alternatives available, we have concluded that a merger with Pilot represents the best possible outcome for Flying J, our creditors, our customers and our employees,” Crystal Call Maggelet, chairwoman and daughter of company founder Jay Call, said in a statement.

Under the terms of the proposed sale, Pilot would give Flying J cash, stock, and $100 million in bankruptcy loans that Flying J said are needed to push the deal through.

Jimmy Haslam, Pilot’s CEO, said the proposed combination would be “a new beginning for both of our companies.”

The deal, which must be approved by a federal bankruptcy judge by the end of the month, would give Fly-ing J $300 million to $500 million in cash and equity in Pilot, according to documents filed with the U.S. Bankruptcy Court in Delaware.

Flying J said it expects the merger would allow it to “pay all Flying J creditors in full in cash.”

The equity stake would be based on an enterprise value of about $3.3 billion for Pilot and about $1.2 billion for Flying J. Final terms of the deal, which the companies are calling a merger, will be negotiated “over the next several months,” Maggelet said.

Pilot also would provide Flying J with $100 million in debtor-in-possession financing, which the company needs to avert an impending liquidity crisis that threatens both its day-to-day operations and the proposed merger, Flying J said.

The short-term liquidity threat arose as part of an earlier settlement with Great American Insurance Co. Under the terms of that settlement, GAIC will withdraw the surety bonds that Flying J uses to meet requirements for state workers compensation and fuel tax licensing.

When GAIC terminates the bonds on Aug. 4, Flying J will be on the hook for $22 million in replacement bonds. Flying J, based in Ogden, Utah, said it had only $28.5 million in cash on hand as of July 10.

“Failure to resolve the limitations on the debtors’ business posed by these liquidity constraints could undermine Flying J’s proposed transaction with Pilot,” Flying J said in court papers. “In every sense of the word, the DIP facility is vital to the debtors’ ability to continue operations.”

Flying J has petitioned bankruptcy judge Mary Walrath to approve the merger at a hearing scheduled for July 30. Pilot has given Flying J until July 31 to obtain court approval.

Meanwhile, Flying J said it is “evaluating alternatives” for its oil refining assets, including the Bakersfield, Calif., refinery that it idled in January.

Flying J already has a buyer for its 700-mile Longhorn oil pipeline. Distributor Magellan Midstream Partners has bid $340 million for the pipeline, which delivers crude from Houston to El Paso.

Flying J’s oil refining operations were hit hard last year by the sudden run-up in crude oil prices and the abrupt drop that followed, as recession-squeezed businesses lost their appetite for oil, the company said in court documents.

With margins squeezed in the fuel business, Flying J faced a liquidity crunch even as credit flow slowed to a trickle, forcing the company into a Chapter 11 bankruptcy filing in December.

Flying J’s truck-stop operations, though subject to liquidity pressure from the company’s unprofitable refinery business, remain profitable and are not part of the bankruptcy filing, Flying J has said.

Meanwhile, the head of one of the country’s largest truck-stop franchisee networks, Roady’s Truck Stops, said that his company was bracing for more aggressive fuel purchasing strategies that Pilot is likely to roll out once it takes over the Flying J network.

“When Flying J stopped taking the Comdata card in 1996, many other truck stops gained business” said Bob Lee, president

of Roady’s. “I assume that Pilot will start taking the Comdata card at Flying J locations, so we will have to work harder to keep our business.”

Comdata, owned by Ceridian Corp., is the largest provider of fuel card services in the United States.

With one fewer truck stop operation to pressure competitors on fuel, retail prices could firm up, Lee said.

“Many times, Pilot and Flying J got into a ‘price war,’ a war the independent truck stop could not fight,” said Lee.

Roady’s coordinates fuel purchasing and marketing for about 280 independently owned and operated truck stops.

Other major truck-stop chains reached by Transport Topics, including Love’s Travel Stops & Country Stores and TravelCenters of America, declined to speculate on the effects of a combination of the two largest privately held truck stop operators.

Natso, the trade group for truck stop owners, declined to comment for this story. The Owner-Operator Independent Drivers Association also declined to comment.