Engine Capital to Nominate Slate for CST Board

NEW YORK — A big, contentious battle could be on the way for CST Brands Inc. board of director positions when the company hosts its 2016 annual meeting of stockholders, expected to be in June.

A second firm, New York City-based Engine Capital LP, announced it will nominate four “highly qualified” board of director candidates: Rocky B. Dewbre, Brad Favreau, Daniel Pastor and Bryan F. Smith Jr.

Engine Capital owns approximately 1 percent of the outstanding shares of Corner Store parent CST. As CSNews Online reported on Feb. 24, another investor in the company, JCP Investment Management LLC, also claimed it would attempt to place new people on the convenience store retailer’s board, but did not mention any potential names. Therefore, at this point, it is unknown if JCP would agree would Engine’s nominees or attempt to elect other board members.

On Dec. 9, Engine Capital wrote a letter to CST’s board of directors, alleging the company had had operational and financial underperformance since being spun off from Valero Energy Corp. in 2013.

In a news release issued Monday, Engine acknowledged CST has since provided more details on its Flash Foods Inc. acquisition, announced its intention to pursue a real estate venture and announced 2015 fiscal fourth-quarter results. However, “these new details continue to be disappointing and confirm that the status quo is not acceptable,” the financial firm wrote.

Engine did add CST is a valuable and strategic asset, but noted: “We are increasingly of the view that it is time for the board to take a step back and start analyzing some of its strategic initiatives as part of a broader strategic review. The board and management are trying to juggle many different strategic initiatives that carry a significant amount of risk. Why not engage in a price discovery process and establish the value of CST to a third party and compare that value to the value that could be realized pursuing the riskier standalone plan of the company?”

Additionally, Engine said: “Given recent industry activity, we suspect that the board would find interested buyers if it explored that strategic option. In fact, we believe that management has recently rebuffed overtures to preliminarily discuss a possible combination.”

Among the four people Engine plans to nominate to CST’s board of directors, three have considerable c-store industry experience (Dewbre, Pastor and Smith Jr.), while Favreau is experienced in private equity, banking and mergers and acquisitions.

Dewbre most recently served as executive vice president, channel operations, for Sunoco LP. Previously, he spent more than 20 years in various leadership roles at Susser Holdings Corp. and Susser Petroleum Partners LP.

Pastor, founder of Daniel Pastor Consulting LLC, was previously CEO of Mid-Atlantic Convenience Stores and also served as on the board of directors of NACS, the Association for Convenience & Fuel Retailing.

Smith Jr. spent more than 25 years at 7-Eleven Inc. in a variety of positions, including executive vice president. Most recently, he served as a member of the board of directors of Susser Petroleum Partners.

Favreau serves as a partner at Engine. Prior to joining the investment firm in 2013, he was an investment professional at private equity group Apax Partners. He also worked at UBS Investment Bank, where he specialized in mergers and acquisitions.

In Monday’s news release, Engine cites seven problems currently plaguing San Antonio-based CST. The alleged deficiencies come in the areas of:

• Significant growth in expenses;
• Organic growth;
• Relationship with CrossAmerica Partners LP;
• Merchandise sales;
• Real estate venture;
• Mergers and acquisitions; and
• “Little skin the game,” which refers to the fact that the nine current independent members of CST’s board of directors own only a combined 100,000 shares of the company, equivalent to only 0.15 percent of the company.