CST Takes Steps to Address Shareholder Unrest

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CST Takes Steps to Address Shareholder Unrest

03/04/2016

SAN ANTONIO — CST Brands Inc. is commencing an “exploration of strategic alternatives to further enhance shareholder value.” The review process will be comprehensive and include a “fresh look” at several of CST’s previously announced initiatives, such as its new real estate venture.

“We believe there continues to be a disconnect between CST’s intrinsic value and the price of our common stock in public equity markets,” said Kim Lubel, president and CEO of CST Brands. “For this reason, our board of directors is initiating a process to explore and evaluate a wide range of strategic alternatives to maximize value for our shareholders.”

BofA Merrill Lynch is advising CST in the process, while J.P. Morgan Chase is serving as a co-advisor.

The parent of Corner Store convenience stores stressed there is no assurance the strategic review will result in a transaction. In a news release, CST did not say what potential strategic alternatives it will consider.

No matter what avenue CST takes, two new members to its board of directors will be involved in the process. CST announced it struck two agreements with investment firms, JCP Investment Management LLC and Engine Capital LP, both shareholders in the c-store operator who sought to gain members on CST’s board at its annual meeting of stockholders this June.

Joining CST’s board of directors immediately is Thomas W. “Tad” Dickson, former chairman of the board at The Pantry Inc., and Rocky B. Dewbre, former senior executive with Sunoco LP. Dickson is being appointed to fill the CST board vacancy created by William “Bill” Moll, who retired from the board effective immediately. Dewbre is being appointed to a newly created CST board seat.

In turn, JCP and Engine agreed to withdraw their previously announced plans to nominate candidates for election to the CST board at the retailer's 2016 annual meeting.

“We are delighted to welcome Rocky and Tad to the CST board,” said Lubel. “Over the past several months, one of our major goals as a board has been to add key skill sets and further diversify and strengthen our board’s breadth of experience. These outstanding executives are tremendous resources in providing valuable industry experience and insight into our corporate strategies and assisting with the board’s review of alternatives to enhance stockholder value.”

James Pappas, managing member of JCP, said he was pleased to work collaboratively with the board and management team to reach an agreement. “We strongly support the board’s decision to pursue strategic alternatives that are in the best interest of both stockholders and this Texas-based company. We are confident that the addition of Tad to the CST board will be of great value in this strategic review and the board’s efforts to enhance stockholder value.”

Added Arnaud Ajdler, managing partner of Engine Capital: “We are happy the company is adding Rocky Dewbre and Tad Dickson, two highly qualified directors, to its board of directors and at the same time initiating a strategic review process to maximize stockholder value. This is a good outcome for stockholders.”

Following CST’s announcements, sister company CrossAmerica Partners LP reaffirmed its own earnings guidance to Wall Street analysts.

“While the board of directors at CST conducts its review of strategic alternatives, we intend to continue to execute on our strategic plans for growth, including our acquisition of 31 convenience stores from SSG Corp. expected to close later this month,” said Jeremy Bergeron, president of CrossAmerica.

MARKET REACTION

Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC, believes CST’s announcements are “a very positive development.”

“Regardless of the outcome of its strategic review, we are encouraged by the diligence with which management has tried to create shareholder value and believe there is significant upside to CST’s stock,” Herzog wrote.

Once the strategic review is completed, an outright sale of CST remains a possibility. In fact, Dickson was at the helm of The Pantry’s board of directors when it agreed to be sold for approximately $1.8 billion to Circle K parent Alimentation Couche-Tard Inc. in December 2014.

Shares of CST’s stock rocketed higher in Friday trading on the New York Stock Exchange following the announcements. In morning trade, the shares traded for more than $39 each, a one-day increase of more than 14 percent. This stock increase lifted CST’s market capitalization to approximately $3 billion.

San Antonio-based CST Brands Inc. operates more than 2,000 c-stores in the Southwestern United States, Georgia, Florida, New York and eastern Canada.