Cary News

Cary-based Pantry to be acquired by Canadian chain

The Pantry, the Cary-based convenience store chain that operates primarily under the Kangaroo Express brand, is being acquired by a Canada-based chain for $860 million.

Alimentation Couche-Tard, which operates in the U.S. mostly under the Circle K brand, is paying $36.75 per share for The Pantry, a 27 percent premium over where the company’s stock was trading before news reports of a possible sale emerged earlier this week. Including The Pantry’s debt, the deal is valued at $1.7 billion.

The Pantry is one of just two companies based in the Triangle that made the latest Fortune 500 list of the nation’s largest companies. The sale to Couche-Tard is expected to close in the first half of 2015, after which Quintiles will be the lone Triangle-based company on the Fortune list.

The convenience store industry has been consolidating in recent years, and Couche-Tard has been among the most active buyers. The Pantry acquisition is the company’s second-largest in its history. Shares of Couche-Tard, which trade on the Toronto stock market, rose 8 percent Thursday.

The deal gives Couche-Tard a stronger position in the fast-growing Southeast, where The Pantry operates 1,513 stores. Brian Hannasch, Couche-Tard’s CEO, said on a conference call with reporters Thursday that The Pantry stores fill in coverage gaps in the company’s current network.

“It’s a strong fill-in in many of our states,” he said, noting it will make the company the market leader in Florida. “ ... We think there’s a lot of synergies in combining the network and eventually combining the brand.”

Couche-Tard, which is French for “night owl,” has 6,303 convenience stores in North America, including 4,851 stores that sell gasoline. The Pantry has been closing under-performing stores in recent quarters, and Hannasch said that would continue after the acquisition. No decision has been made about the total number of stores that may be closed, he said.

Couche-Tard has not made a decision yet on whether it will keep the Kangaroo Express brand. It also remains unclear whether the combined company will maintain a corporate presence in the Triangle, where The Pantry now employs 250 people in Cary and 250 in Sanford.

“We’ll be meeting after the holidays to discuss integration plans,” Hannasch said. “But at this time no decisions been make about either shared-service offices or field offices of either company.”

The Pantry employs about 15,000 people, including about 3,500 in North Carolina. Couche-Tard, which is based in Laval, Quebec, employs more than 60,000 people worldwide. It operates in 6,303 stores in Europe and, under a licensing agreement, about 4,600 stores in 12 other countries, including China, Japan, Indonesia, Vietnam and the United Arab Emirates.

The Pantry’s high level of debt is a the result of past acquisitions, some of which have proven in hindsight to be bad deals.

In recent years, The Pantry has put in place a turnaround strategy that involves both remodeling its aging stores as well as adding quick-service restaurants, such as Subway or Taco Bell, to complement its convenience stores in some locations.

“They have quite high leverage – high debt – but other than that the stores, other than the ones that will have to be closed, are well-located and in good shape,” said Alain Bouchard, Couche-Tard’s founder and executive chairman of its board of directors. “So, for us it’s a perfect fit.”

The company reported solid fourth-quarter earnings last week that handily beat Wall Street profit estimates. The Pantry has gotten a boost from falling gasoline prices, which have improved its fuel margins and helped increase merchandise sales in its stores.

“We are not surprised The Pantry was an attractive target to Couche-Tard given The Pantry’s turnaround has been progressing nicely over the past few years, demonstrated by The Pantry’s much improved results over the past several quarters,” Bonnie Herzog, an analyst with Wells Fargo Securities, wrote in a research note Thursday.

“We believe this deal is positive and further demonstrates our thesis of ongoing industry consolidation in the convenience-store space,” she wrote.

The Pantry’s share price has been steadily rising this year after hitting a 52-week low of $12.30 in February. The shares closed Thursday at $36.48, up 96 cents.

The deal with Couche-Tard comes about nine months after a dissident shareholder group was able to get three of its nominees elected to The Pantry’s 9-member board of directors.

The shareholders, JCP Investment Management and Lone Star Value Management, had been critical of the performance of the company’s stock over the previous five years and proposed a number of possible ways to increase shareholder value. The Wall Street Journal reported earlier this week that The Pantry hired an investment bank to run an auction to solicit bids for the company.

While its stores are located in the fast-growing Southeast, The Pantry has been hurt in recent years by sluggish fuel sales in the region. The rural areas where many of its stores are located were hit particularly hard by the recession, with unemployment skyrocketing in industries where many of its customers work.

The Pantry has also faced competition from new operators such as QuikTrip and Sheetz that are aggressively building new stores in the Southeast.

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