The Pantry Refutes Proxy Advisory Firm's Report Favoring CPS

Retailer says Glass, Lewis report contains "numerous inaccuracies," defends strategy

The Pantry Kangaroo Express Convenience Stores Glass Lewis

HOUSTON & CARY, N.C. -- Continuing the point-counterpoint fencing match between convenience store retailer The Pantry Inc. and Concerned Pantry Shareholders, CPS drew blood with its announcement that Glass, Lewis & Co. LLC, a leading proxy advisory firm, has recommended that The Pantry shareholders vote to elect all three of CPS's nominees at the company's annual meeting on March 13, 2014.

CPS--a group of shareholders led by JCP Investment Management LLC and Lone Star Value Management LLC--believes that the company is being mismanaged, resulting in a strategy that is taking it in the wrong direction, especially compared to other c-store companies, including Susser Holdings, Alimentation Couche-Tard and Casey's General Stores.

The Pantry, meanwhile, parried with a letter saying that the advisory firm's report "contains numerous inaccuracies that illustrate Glass, Lewis' fundamental lack of understanding of our business."

James Pappas of JCP said, "Glass, Lewis has strongly recommended much-needed change to the Pantry board and for shareholders to vote [for CPS' nominees]. Importantly, a leading independent proxy voting advisory firm has recognized the sustained underperformance of Pantry and compelling case for a better plan to build The Pantry into a stronger, more profitable and ultimately more valuable company. … All three of our director nominees … are firmly committed to the future success of The Pantry."

Glass Lewis said it performed an analysis of both sides' positions in the election contest and considered, among other things, "the company's poor total shareholder return and operating performance, unresponsiveness to governance concerns, as well as the strong experience and qualifications of CPS's nominees." It concluded that shareholders should vote for CPS' candidates.

"We believe the dissidents have submitted a clear and cogent case in favor of the benefits prospectively realized through a measured degree of board-level turnover. … We believe JCP and Lone Star fairly highlight the fact that Pantry has lagged its peers by nearly any reasonable standard of value or performance, a straightforward argument management and the board largely sidestep in favor of absolute observations of granular metrics and dubious contest rhetoric. In our view, such a rebuttal speaks very little to the fundamental premise at play here: the company's poor operating metrics, questionable investment program and lack of a cohesive strategy--as underpinned by some fair degree of management continuity--invite a considerable degree of scrutiny and support the notion that all investors would benefit from a fresh perspective at the board level."

Glass Lewis said that while The Pantry asserts CPS has "failed to articulate any plan" as part of its presentation, "we find the 'dissidents' [CPS] have, in fact, compiled a rather extensive and contextual action plan intended to remediate the issues and concerns detailed as part of its larger argument. This plan, which could only be implemented through some measure of buy-in from the remaining board members, includes a potential monetization of Pantry's real estate assets--including those stores in low-growth areas--as a means to more aggressively fund a pay down of the company's debt obligations, formation of more rigorous return on invested capital criteria to reduce investment in low or nil-return projects and a tightened expense structure. Given Pantry's decidedly plain underperformance in these areas, we fail to see how the dissidents' suggestions could be construed as lacking sufficient articulation to be considered viable."

"In addition, Pantry's materials allege the dissidents' solicitation is based on 'vague and undefined concerns,' a position we consider to be objectively and categorically false, based on available disclosure. To the contrary, we believe the dissidents' materials offer considerable detail on the matters most pressing to investors--total returns, profitability, capital allocation and management stability--accompanied, where applicable, by copious relative analyses to contextualize Pantry's market position. … In no case do we find the board offers a substantive and valid deflection of the arguments presented by [CPS] or a meaningful discussion of Pantry's mediocre historical performance."

Glass, Lewis concluded, "We believe the dissidents have submitted a far more compelling case in favor of board-level change than Pantry has submitted in favor of maintaining the status quo."

Click here to view the full U.S. Securities & Exchange (SEC) filing of the CPS press statement on the Glass Lewis report.

The Pantry responded to the Glass, Lewis report and CPS press statement: "We are disappointed with the report issued by Glass, Lewis, which contains numerous inaccuracies that illustrate Glass, Lewis' fundamental lack of understanding of our business."