Susser's Soft Sell

Town & Country's New cites mutual respect, compelling financials in decision to sell

Published in CSP Daily News

By
Mitch Morrison, Vice President & Group Editor

SAN ANGELO, Texas -- For many who heard of Susser Holdings Corp.'s plan to acquire San Angelo-based Town & Country Food Storesas first reported in a CSP Daily News Flashthe common reaction was surprise.

Granted, the transaction appears a good fit for Susser. Their markets' contiguous geographies, similar foodservice emphasis, common backoffice and point-of-sale systems and shared fuel supplier in Valero Corp. and distributor in McLane Co. made Corpus Christi, Texas-based Susser and Town & Country the retailer equivalent of separated at birth.[image-nocss]

But why did Town & Country, with its strong financial standing$830 million in total sales, $130 million in gross profits and $50 million in EBITDAdecide to sell?

Alvin New, Town & Country president and CEO, is careful in his comments on the deal, especially considering the need for Securities & Exchange Commission approval. But he is clear on one thing: The timing and resulting offer just made sense for his team.

The companies have had mutual respect and an ongoing relationship that led to this unsolicited offer and Susser's renewed interest in Town & Country, New told CSP Daily News via e-mail. From Town & Country's perspective, this offer is compelling financially for our shareholders, creates a compelling company with access to capital to grow and brings opportunity to employees and shareholders, and is the merger of similar cultures and two small/medium-sized companies, so that most people from each organization will be integrated into the new company.

What made the offer especially appealing to Town & Country execsbeside the $361 million purchase pricewas Susser's reputation and similar people-first culture.

Susser Holdings has a record of success and longevity that is attractive, said New. The combined company is attractive geographically and financially. Also, the cultures are similar and the merger of 330 stores with 170 stores creates the opportunity to hold on to most of Town & Country's best attributeits people.

Morgan Keegan & Co. Inc., Memphis, Tenn., was hired by Town & Country about eight years ago to explore options for the company, including selling. Susser was one of the interested parties at the time, but Town & Country's internal management team got the nod instead.

Meanwhile, during this period, Morgan Keegan had developed a strong relationship with Susser Holdings CEO Sam Susser. We had continued developing a relationship with Sam, Randy Karchmer, managing director of mergers and acquisitions at Morgan Keegan, told CSP Daily News. Morgan Keegan served as a financial advisor in the merger. We raised the first round of private equity that went into his company and subsequently, were a co-manager on his Initial Public Offering.

These connectionsas well as a benchmarking partnershipkept Town & Country and Susser close to each other's businesses over the years.

With a strategy of acquisition, you go out, you meet people, stay in touch with them, share best practices if you can without passing over too much strategy, and when the time comes and the acquisition's there and you get a chance to bid on them, you're the best bidder and that's great, said Dean Haskell, senior vice president of equity research and restaurants, an analyst who follows Susser for New York City-based Morgan Joseph.

The fact that this particular acquisition was a no-bid situation speaks to its fit. When you find people that have cultures that fit hand in glove, it's easier to make that transaction without having to go out and create an auction environment, he said.

Wall Street sources told CSP that by expanding Stripes' geographic landscape, the deal makes Susser potentially even more attractive to investors, who previously voiced concern about the operator's market vulnerability amid a fierce competitive landscape. Susser's stock price rose nearly 10% by the Monday following the acquisition announcement September 21, thanks to ratings upgrades by many analysts.

While Karchmer said he could not comment on the investment community, he does say that the expansion can only benefit Susser Holdings.

On the retail front, as reported earlier, Susser plans to rebrand all Town & Country c-stores to its Stripes brand beginning in fall 2008. Our stores are similar in size and we actually worked with Town & Country on best practices and new store planning, so our new stores look and feel a lot alike, said Sam Susser in a September 21 investor conference call. This similarity lends self in moving to a single Stripes brand.

Although the rebranding may be tough for consumers in Town & Country's San Angelo hometown, it's a necessary and positive move, said New. The geographic overlay of the combined companies logically presents the need to have one brand, said New. We will miss the Town & Country brand, but it is a reflection of usnot we of itand we will all make the Stripes brand a reflection of caring people with integrity that focus on customers, employees and shareholders while striving to be best in class.

For more on the Susser/Town & Country deal, watch for the October issue of CSP magazine.

By Mitch Morrison, Vice President & Group Editor
View More Articles By Mitch Morrison