Canadian convenience store operator Alimentation Couche-Tard Inc. said Thursday it would buy The Pantry Inc. (PTRY) in a $1.7 billion cash and debt deal that would expand the company's presence in the U.S. Southeast.

Shares of Cary, North Carolina-based Pantry were gaining 2.9% on Thursday to $36.55, extending its 2014 advance to 118%.

Terms of the deal call for Couche-Tard to pay $36.75 per share in cash for Pantry, a premium of 39% to the target's 30-day average share price. The deal values Pantry's equity at $861 million, with Couche-Tard also set to assume the debt on Pantry's balance sheet.

Cary, N.C.-based Pantry operates 1,512 retail locations in 13 U.S. states, operating under the Kangaroo Express brand and other banners. The company had been under pressure from activists including JCP Investment Management LLC and Lone Star Value Management LLC, who in March won three spots on the company's board.

Couche-Tard, of Laval, Quebec, already ranks as the largest independent convenience store operator in the U.S in terms of number of company-owned stores. The company's network is comprised of 6,303 stores in North America and 2,239 stores spread across Scandinavia, Poland, the Baltics and Russia.

Company CEO Brian P. Hannasch in a statement said that the deal would give Couche-Tard a large position in an attractive market.

"The Pantry is an excellent company and is well positioned in the Southeastern and Gulf Coast regions of the U.S., two of the fastest growing areas of the U.S.," Hannasch said. "With this transaction we will add more than 1,500 stores to our network which will position us as the definitive leader in this region and will reinforce our position as one of the largest convenience store operators in North America."

This is Couche-Tard's largest deal since its 2012 purchase of the retail unit of Norway's Statoil ASA for 15.9 billion Norwegian kroner ($2.8 billion). In 2010 it made an unsuccessful $2 billion hostile bid for Casey's General Stores Inc. of Iowa in an effort to expand its U.S. operation.

The Pantry deal will be funded via available cash, existing facilities and a new term loan. Couche-Tard said that the transaction includes "customary breakup fees," but did not disclose the amount.

Dennis G. Hatchell, CEO of Pantry, in a statement said that "unlocking the strategic value of these combined firms will benefit the current Pantry shareholders and provide ongoing opportunities for most of our employees."

Pantry was advised by a Bank of America Merrill Lynch team including David Finkelstein, Steve Baronoff, Ryan Seifert, Reggie Hayes and Ravi Mani, with Willkie Farr & Gallagher LLP's Steven Seidman, Laura Delanoy and Danielle Scalzo joining with attorneys at Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLP to provide legal counsel.

J. Jeffrey Brown and Michael Stanfeld of Faegre Baker Daniels LLP are providing legal advice to Couche-Tard.

Also see: The Pantry Trading Higher Today on Couche-Tard Acquisition


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