Kim Lubel, president and CEO of CST Brands recently outlined the long-term benefits of some high-profile company moves, including the acquisition of Flash Foods.
By David Bennett, Senior Editor
In business circles, the term “inside baseball” connotes something highly detailed—usually operational. It can be as detailed as the diameter of customized bolts included within a manufacturer’s latest, greatest extrusion machine, for example.
What doesn’t make the trade magazine fodder is the inside decisions leading up to the purchase of those special bolts. Such decisions are usually bandied about a big table, often in confidence to prevent competitors from knowing the inner strategies and planning exercised by that company.
However, publicly traded companies sometimes don’t have that luxury. Just ask San Antonio-based CST Brands Inc., which has run off a growing string of c-store acquisitions since enlisting general partner CrossAmerica GP LLC, a wholly-owned subsidiary of CST Brands, with the partial purpose of doing dropdown transactions involving bolt-on acquisitions such as the recent deal for Flash Foods Inc., a 164-store chain based in Waycross, Ga.
The Corner Store parent company—which recently announced a drop in its year-end 2015 revenue—has faced growing pressure from two investment groups—Houston investment firm JCP Investment Management and investment group Engine Capital L.P.—both have raised questions about whether CST stockholders would see solid returns on the Flash Food addition.
A recent letter made public by Engine Capital stakeholders included this:
‘The recent Flash Foods deal is a case in point. As part of the deal synergies, CST has communicated that it expects a $4 million improvement in gross profit by year three, which equates to an approximately $24,000 benefit per acquired store. By comparison, in the recent purchases of Hess Retail (by Marathon Petroleum Corp.) and The Pantry (by Couche-Tard), the increase in anticipated gross profit dollars per store was approximately $56,000 and approximately $39,000, respectively.’
Kim Lubel, president and CEO of CST Brands, took time out to explain to CSD the far-reaching advantage of adding Flash Foods to its portfolio, heralded in the industry for its progressive technological platforms.
“The recent Flash Foods acquisition was accretive to CST,” Lubel said. “Like our Nice N Easy acquisition, we expect to leverage some of the industry leading practices from Flash Foods, including their loyalty program and inventory management program. At the same time, we can leverage our distribution expertise and food offerings to enhance the Flash Foods network.
Strategically, Flash Foods provides us with a strong network in a new growth market, which complements our existing CST and CrossAmerica networks,” Lubel continued. “We will be opening two new-to-industry (NTI) stores under the Flash Foods banner in Georgia within the next two months. The purchase also included additional land bank sites for future NTI expansion. The larger new store formats allow us to add food programs to grow merchandise gross profit.”
CST also announced recently that it has entered into an agreement with JCP Investment Management and Joshua Schechter pursuant to which Thomas “Tad” Dickson, former chairman of the board of directors of The Pantry Inc., and an agreement with Engine Capital pursuant to which Rocky Dewbre, former senior executive with Sunoco LP, were each appointed to the CST board of directors.
Lubel explained that the experience that both veterans bring to the table will benefit CST’s long-term goals.
“Our board had been looking to refresh and to expand the diversity of experience of our board members for some time now,” Lubel said. “We added Joe Reece whose extensive capital market and transaction experience, along with the retail grocery experience of Tad Dickson and the tremendous c-store background of Rocky Dewbre, will add to the depth and strength of our board. Tad Dickson’s time spent as chairman of the Pantry board of directors will certainly benefit CST as well. The company expects that these new board members will be active in helping the company shape and refine its strategies going forward.”