It is fall 2013, and Kim Bowers is beaming. She is mixing easily with employees accustomed to formality. She is touching shoulders, pressing the flesh and deftly making small talk with people who now call her their boss. She is nothing like her predecessor, Bill Klesse, the laconic, by-the-numbers Valero CEO who would not be described as charismatic.
It is about six months after the country’s largest independent refiner spun off its retail division into CST Brands, a new publicly traded company.
A cultural shift is taking place inside CST’s San Antonio headquarters. Instead of button-down shirts, many of the male employees are sporting khakis and polos. Some are even growing beards, something previously forbidden as part of Valero’s ban on facial hair (due originally to safety reasons at refineries).
Kim is dressed in a white CST polo shirt, with a casual necklace and relaxed mien. And she is racing to literally and figuratively break down the walls of Valero and forge a new identity.
CST’s optimism—and Kim’s charisma—carried into 2014. As she visited stores, her fluency in Spanish won over her Latino employees and customers. She hosted 5K run/walk fundraisers in new communities where Corner Store locations were springing up. And new stores were larger, featuring oversized exterior windows and a foodservice program that expanded on Valero’s legacy whoopee pies, tacos and kolaches.
The changes played well with the company’s base. But what about on Wall Street? Kim’s engaging personality and lawyerly background delivered an impressive one-two punch. She was responsive to analysts’ questions about vision and quarterly returns, and she laid out a business growth strategy anchored in organic evolution and acquisition.
Overall, life was great. Kim married fellow lawyer Lance Lubel, a personable partner with Houston-based Lubel Voyles LLP. And Kim was CEO, president and chairman of a nearly $11 billion operation with 1,900 sites in the United States and Canada. In September 2015, she was named one of Fortune’s 50 Most Powerful Women in Business.
“It’s such an honor to be included in the list with inspirational women like Mary Barra of General Motors, Indra Nooyi at PepsiCo and megastar Taylor Swift,” she said then.
Then came Dec. 9, 2015. A New York-based institutional investor called Engine Capital LP delivered a letter to CST’s board of directors. It raised serious concerns about the “poor stock performance … the significant operational underperformance of the company, executive compensation, capital allocation, real-estate monetization, corporate governance matters, investor communication and board composition.”
Why, Engine wondered, was CST stock selling only in the mid-$30s per share and not in the low to mid-$50s? Why was Alimentation Couche-Tard and Casey’s General Stores Inc. trading at approximately 13x and 10x EBITDA vs. only 8x for CST?
Another activist shareholder group, JCP Investment Management of Houston, soon jumped into the fray, raising concerns about in-store performance, failure to maximize profits at the pump, insufficient board oversight and much more.
Last month, CST management and the activist shareholders reached a deal to add two retail veterans to the board and to retain two respected financial institutions to explore all strategic options.
The feel-good story of 2013 has collapsed into one that will most likely end in 2016 with CST’s sale.
There is little probability CST will continue to operate independently past this year or early next year, as one insider source told me: “They’ve hired two world-class investment bankers for a reason, and that is to sell the company. They have put themselves on the market, and they are searching for the best offers they can get.”
How sad. There is no corruption at CST, and there has been no lack of eff ort. I have many friends at the company, and it has been painful to write about the difficulties there.
CST as it is today is a good company with good stores and good people. What it is not, unfortunately, is a good investment.
“If CST were like most of us, privately run, privately held, they’d be fine,” one c-store exec told me.
“They are a steady company. But they don’t have the M&A mettle of Couche-Tard or the operational know-how of Casey’s. They don’t really stand out other than being just another good convenience-store chain that happens to have scale.”
Mitch Morrison is vice president and group editor of Winsight’s Convenience Group. Reach him at mmorrison@winsightmedia.com.
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