Alimentation Couche-Tard reassures investors after CFO resigns suddenly

Republish Reprint

Damon van der Linde | October 14, 2015 | Last Updated: Oct 14 9:26 PM ET
More from Damon van der Linde

Graham Hughes/The Canadian Press filesCouche-Tard is expanding its reach in the southern United States with a deal to buy 18 convenience stores operating under the Texas Star brand.

• 
  

MONTREAL — The sudden announcement of the resignation of Alimentation Couche-Tard Inc.’s CFO Raymond Paré caught investors by surprise Wednesday. And it left some wondering whether the retailer, known to rely heavily on acquisitions — the latest announced the very same day — might be sidelined from potential deals while it looks for a replacement.

“The timing of the resignation surprises us,” wrote Desjardins Capital Markets analyst Keith Howlett. He said the takeaway of it was a “negative” for the company.

But Couche-Tard maintained that Paré’s abrupt departure would not affect ongoing acquisition ambitions, even as it revealed a minor deal to pick up 18 shops to enter a new market in southern Texas.

After 13 years as chief financial officer, Paré announced his resignation Tuesday evening, though it wasn’t widely reported until Wednesday morning. His resignation will be effective Friday. Both he and Couche-Tard CEO Brian Hannasch say the hasty resignation was not due to any conflict with the company and that it was the CFO who made the decision to “pursue other interests and spend more time with his family.”

“It was following a tough reflection and discussion that I made this decision,” said Paré during a conference call to address the resignation on Wednesday.

However, one analyst has suggested the change may reflect Hannasch’s desire to build a team of executives that are a “better fit” for his management style.

The Laval, Que.-based company also announced Wednesday morning the acquisition of the 18 U.S. stores from Texas Star Investments Inc., which also includes two free-standing Subway restaurants and a dealer fuel-supply network.

Hannasch said that although executives are involved in “elephant-sized” acquisitions, it’s usually regional management who work to identify smaller local opportunities such as the Texas Star deal, which did not involve Paré.

“We don’t see this as any issue that would slow our M&A activity today,” Hannasch said.

“From an M&A standpoint, with the big ones we feel we’re well-positioned to execute on them, and the small regional ones, we don’t play a big role there and our teams are in a very good place to continue what they are doing.”

The Texas Star acquisition will be financed from Couche-Tard’s available cash and credit, and the companies have agreed not to disclose the purchase price.

David Hartley with Credit Suisse Securities said he also questioned the timing of Paré’s sudden resignation at a time when the company is pursuing large M&A prospects, primarily outside North America.

“I’m talking about large M&A activity that really moves the needle. The optics on it are called into question a little bit,” said Hartley during the conference call.

Howlett said one of Paré’s strengths has been to routinely call prospective M&A opportunities “every few months” throughout his tenure and is not aware of any disagreements between management that may have precipitated the resignation.

He said the withdrawal of a proposal to amend the share structure of the corporation at the recent AGM does not, in his view, reflect negatively on Paré’s abilities as CFO.

“Issues that could theoretically create friction between operating management and financial executives within a major corporation are the valuation of acquisitions, the requisite return on capital spending and the appropriate level of spending on IT infrastructure,” wrote Howlett, saying he expects some weakness in the share price in the near term, which was down 2.33 per cent Wednesday, closing at $59.82 in Toronto.

RBC analyst Irene Nattel said she sees the resignation as being “neutral,” and the company as being “stable and steady.”

“The announced departure of M. Pare should in no way be interpreted as a harbinger of bad news on the financial front,” Nattel wrote in a note.

Vishal Shreedhar of National Bank Financial told the Les Affaires newspaper he believes that after 18 months in office, Hannasch may want to make adjustments to his management team.

“He made adjustments and wants to surround himself with executives who better fit his style and his strategic approach,” said Shreedhar.

During Paré’s tenure at Couche-Tard, the company has made some major acquisitions, including Norway’s Statoil Fuel and Retail and the US$1.7-billion purchase of southern U.S. convenience store operator Pantry Inc.

Hannasch said Paré and his team have also recently extended Couche-Tard’s revolving credit.

“We’re in a very good position to pursue any M&A activities that would be presented to us,” he said.

“We’re confident we have the expertise and could call on additional expertise if we needed to go out to capital markets and raise something that’s very material beyond our current capacity.”

Couche-Tard operates 15,000 stores globally and last year brought in revenues exceeding US$35 billion. It also recently decided to rebrand the vast majority of its stores under its Circle-K logo.

“Today we’re reaching millions more customers than when Ray joined the company,” said Hannasch.

Hannasch says Couche-Tard has not yet found a successor and has begun looking both within the company and externally.