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Sunday, February 1, 2015

Coup For Roo
A look at what Couche-Tard will do with The Pantry’s 1,512-store Kangaroo network

Source: CSP Magazine
By Mitch Morrison, Vice President & Group Editor, & Samantha Oller, Senior Editor/Special Projects Coordinator

Sometimes patience pays off.

Frequently frustrated while competing in an M&A climate in which multiples defy conventional wisdom, Alimentation Couche-Tard, long considered a lion of acquisition in the c-store industry, stubbornly held true to its disciplined disposition.

Yes, the Laval, Quebec-based operator did bid up in its hostile takeover pursuit of Casey’s General Stores more than four years ago. And yes, it submitted a healthy proposal for Hess’ retail network and Nice N Easy Grocery Shoppes just last year.

But long accustomed to returning from battle with a prize, Couche-Tard often found itself outbid by competitors for many of the industry’s most-coveted operators.

So Couche-Tard’s $1.7 billion acquisition of the 1,512-unit, Cary, N.C.-based chain The Pantry was, if nothing else, a resounding wakeup call to the industry that the proprietor of the robust Circle K network has shaken off any notion that its glory days are in the past.

And yet, despite what some are calling the “Coup for Roo” as Couche-Tard assumes control of The Pantry’s vast Kangaroo retail network, many are questioning the purchase.

Specifically:

  • Did Couche-Tard overpay for a company steeped in debt and with a network deep in sale-leaseback arrangements and little real-estate holdings?
  • How will Couche-Tard handle overlapping markets and a portfolio fraught with hundreds of tired, outdated stores?
  • Will adding the largest chain in the Southeast truly increase Couche-Tard’s competitive edge?

Conversely, some have praised the deal, pointing to important upgrades The Pantry had undertaken in recent years to streamline point-of-sale (POS) systems, enhance its food and beverage offering, trim debt and upgrade store imaging.

These supporters acknowledge that Couche-Tard will have its share of work to do to right what has been a listing Pantry vessel. But they also say that unlike the recent private-equity investors who have captured headlines in the c-store space in recent years, Couche-Tard has the necessary structure to make this acquisition work.

“This deal needed a thoughtful, disciplined approach, and Couche-Tard is well experienced in this area,” says Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz. “They grew in the U.S., knowing how to take chains out of bankruptcy like the Dairy Mart deal, and how to take chains out of financial distress.

“They’ll have their work cut out [for