Second Proxy Advisory Firm Backs CPS Over The Pantry

As retailer continues to make its case, ISS recommends vote for "dissident" slate

The Pantry Convenience Stores

HOUSTON -- Concerned Pantry Shareholders (CPS), a group of "dissident" shareholder of convenience store chain The Pantry Inc., on March 3 announced that Institutional Shareholder Services (ISS), a leading independent proxy voting advisory firm, has recommended that stockholders of The Pantry vote to support the election of the director nominees of CPS to the board of directors of The Pantry.

The announcement follows a similar recommendation by Glass, Lewis & Co. LLC, another proxy advisory firm. The retailer and CPS have been trading press releases over the election of directors that will take place March 13 at the annual meeting of shareholders. Earlier on March 3, The Pantry issued a press release presentation to urge shareholders to vote for its recommended slate of director nominees.

Click here to view The Pantry's full SEC filing on the press release "The Pantry Mails Additional Materials to Stockholders."

Concerning the ISS report, James Pappas of JCP Investment Management LLC and Jeff Eberwein of Lone Star Value Management LLC, which are leading CPS, remarked, "We are deeply gratified by the strong endorsement of both leading proxy advisory firms and appreciate the overwhelming support we have received from our fellow shareholders to date. We urge you to remain focused on the core issues in this contest and the facts--The Pantry has been plagued by persistent underperformance and deep undervaluation for which the current Board continues to have no viable solution. In contrast, CPS has a well-thought- out plan to improve the company and the best qualified directors to help implement and oversee it. We are more confident than ever that with your support we can help create a better future for The Pantry."

ISS performed an analysis of both sides' positions in the election contest. In its report, ISS focused on the company's sustained operating and total shareholder return (TSR) underperformance, strategic track record and governance profile.

"Given the long tenure of the three targeted incumbent directors, however, and the company's poor performance over a sustained period, it appears that the dissidents have met their burden of proving that change on the board is warranted," ISS said.

On what it called "The Pantry's persistent destruction of shareholder value and justified lack of shareholder confidence in the current board," ISS said, "Over the last 10 years, the board has not simply failed to increase, but has failed even to sustain, shareholder value. Given the company's financial constraints and increased competition, moreover, the window to create shareholder value may be closing. Shareholders' lack of confidence in the board's and management's ability to unlock shareholder value, as manifested in the share price performance, appears justified."

On "The Pantry's inability to execute on a QSR [quick-service restaurant] plan, the ISS report said, "Both sides agree that QSRs such as Subway, Little Caesar's, etc. play an important role in the ability to differentiate the location and pull traffic into the stores driving greater in-store revenues and increased overall profitability. Over the last 10 years, however, The Pantry has failed to meaningfully increase the number of QSRs and, in fact, its ratio of QSRs to total stores has fallen from 15.5% to 14.3%. Putting aside Casey's, whose business model has always included a restaurant concept, of note is the fact that Susser--which began 2004 will 111 QSRs compared to Pantry's 211--has increased its QSRs by over 217% while Pantry QSRs have increased 5.2% in the last 10 years (and have decreased by 3% in the last five years). This too supports the dissident's premise that the roll out of QSRs has been minimal while competitors have 'thrived' in building out the QSR side of their business."

ISS concluded, "The dissidents have made a strong case for change at the board level and have nominated qualified candidates who are likely to bring a fresh perspective to the board.

Click here to view the full U.S. Securities & Exchange Commission (SEC) filing of the CPS press release on the ISS report.

JCP Investment Management is a Houston-based investment firm that engages in value-based investing across the capital structure. It follows an opportunistic approach to investing across different equity, credit and distressed securities. Greenwich, Conn.-based Lone Star Value Management is an investment firm that invests in undervalued securities and engages with its portfolio companies in a constructive way to help maximize value for all shareholders.

As of Jan. 30, 2014, The Pantry, based in Cary, N.C., operated 1,537 stores in 13 states under select banners, including its primary operating banner Kangaroo Express.

Part of CSP's 2014 Convenience Top 101 retailers