Rebuff doesn’t slow Couche-Tard
One obvious conclusion from Monday’s announcement that Laval- based Alimentation Couche-Tard Inc. will spend US$ 3.7- billion to acquire Texas- based CST Brands is that management and the board are still motivated to create an even larger and stronger company.
That deal, which will bring it an additional 2,000 locations, is the company’s largest- ever — beating the previous best of US$ 2.8 billion that it paid to acquire Norway- based Statoil Fuel and Retail in 2012.
The deal puts to rest any concerns about how focused Couche-Tard’s four founders would be following pushback by investors to a plan they supported that was put forward last summer.
In July, the company announced a plan to take to a shareholder vote at its annual meeting last September. That plan was to remove the company’s “automatic termination of the dual class structure,” when the youngest of its four founders — Alain Bouchard ( executive chairman), Jacques D’Amours ( former vice- president administration), Richard Fortin ( former chief financial officer) and Réal Plourde (former chief operating officer) — reached “the age of 65 (or earlier in the case of death.)”
At the time, all four were directors of the company which started in Quebec in 1980 and has grown organically and through acquisition and now operates a “total network” of about 12,000 sites in Canada, the U.S., Asia and Europe. Those sites employ more than 100,000 people.
One measure of how large its expansion has been is that a footnote to the financials of the company, which now reports in American currency, details eight other exchange rates, including the Polish Zloty and the Russian Ruble.
Under normal circums t ances, t he automatic conversion would have occurred in 2021 when Amours reached 65. The company proposed an alternative automatic conversion: the dualclass share structure would remain until the earlier of none of the founders being a director or the founders’ voting interest falling below 50 per cent.
The proposal was made after a special committee looked at the matter over “several months” and concluded it was fair to the shareholders.
The company, which has been a stellar performer for both its focus on growth and for the rewards it generated for its shareholders, argued the four founders would continue to “have a strong vested interest” in the company. The four owned about 22.7 per cent of the shares outstanding.
In the circular CoucheTard said the plan would allow it to “focus on long-term value creation, instead of quarter to quarter;” would enable the f ounders “to continue to be” directors, and sharing their years of experience, while allowing the founders “to continue to mentor the next generation of leaders.”
In return for agreeing to this proposal — which came around the same time as Fairfax Financial was putting forward a plan changing terms to the employment and voting power enjoyed by Prem Watsa, its founder and current chief executive — Couche-Tard’s Class B subordinate voting shareholders were offered the right to elect 30 per cent of the directors.
Because of considerable shareholder opposition, the proposal to change the company’s articles was not put to the annual meeting.
For whatever reason, Couche-Tard’s market performance has suffered in the wake of that rebuff: since its Sept. 22 annual meeting, it has posted a total return of 1.41 per cent to last Friday — or 10.63 percentage points below the return for the S& P/ TSX composite. In contrast for the five years prior the plan, the company’s total return of 711.48 per cent was almost 18 times the gain for the composite over the same period.