Alimentation Couche Tard Inc. Has a $7.5 Billion Problem

Alimentation Couche Tard Inc. (TSX:ATD.B) held its annual meeting September 19.

An important topic discussed at the event was the company’s desire to get in on the retailing of marijuana in Canada. With more than 2,000 stores across the country, founder and executive chairman Alain Bouchard thinks Couche Tard is eminently qualified to handle the sale of the product, which is soon to be legal.

But that’s not the $7.5 billion problem hanging over the convenience store operator. The real issue has to do with corporate governance and the treatment of shareholders.

Sunset clause expiry approaches

If you follow Couche Tard or own its stock, you’re probably aware of dual-class share structure, which allows the four founders, including Bouchard, voting control, despite owning just 23% of its equity.

Institutional investors hate dual-class structures because it reduces the influence they have on decisions made by the company.

Fidelity, who is said to hold 11% of Couche Tard’s subordinate voting shares, opposed a 2015 proposal to extend the four founders’ hold over the company beyond the scheduled 2021 expiry of its 1995 sunset clause that retained control until the youngest of the group, Jacques D’Amours, turns 65.

The proposal never made it to an actual vote. It now appears that a solution to keep the founders in control won’t be found before the 2021 deadline.

It’s got a $7.5 billion problem

Fidelity doesn’t like the idea of the children of the four men inheriting control of the company when it has almost as much skin in the game with 11% of the equity compared to the kids at 23%.

It hardly seems fair.

But if the name of the game is to deliver results for shareholders, all shareholders, then it shouldn’t matter who controls the business, as long as it produces profitable growth over the long haul.

This shareholder fight is more about Fidelity trying to look good in front of its mutual fund customers than it is about doing the right thing.

The Globe and Mail recently reported that it would take Bouchard and the three other founders $7.5 billion to gain actual control of the business; every share would count for one vote each, instead of the 10 votes for the 147.8 million multiple-voting shares outstanding.

While Fidelity might think this is a $7.5 billion problem for Bouchard et al., it’s a problem for all Couche Tard shareholders, because it’s under the stewardship of these four men, who have helped Couche Tard deliver annual returns of almost 20% over the past 15 years.

Be careful what you wish for

I’m not suggesting that CEO Brian Hannasch will suddenly lose his edge if the four founders lost voting control, but it seems to me that this is a company with a long-term perspective — one supplied by Bouchard and the other founders.

“They’ve been fantastic owners, great managers of the business, entrepreneurs and great mentors to me. So I would love to see them continue,” Hannasch said in an interview at the annual meeting.

Every Couche Tard shareholder ought to think long and hard about this $7.5 billion problem and how to solve it, because the old saying  “be careful what you wish for” might come back to bite you in the keister.

In fact, I’d guarantee it.

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Will Ashworth has no position in any stocks mentioned. Alimentation Couche Tard is a recommendation of Stock Advisor Canada.

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