Public saga erupts around concern for future Couche-Tard ownership

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Concerns about family succession and the abilities of the children of Alimentation Couche-Tard Inc.'s founders to steer the convenience store chain into the future has erupted into a public saga, putting the Quebec company at odds with some of its biggest institutional investors.

Mutual fund giant Fidelity Investments is among investors opposed to a proposal by the four founders of Couche-Tard to extend their control of the convenience store chain, sources said. Couche-Tard's largest shareholder with an estimated 11 per cent of the subordinate-voting shares, Fidelity voiced its disapproval of the founders' proposal, according to someone familiar with the talks – which was pulled by the retailer before it was scheduled to go to a shareholder vote in September, 2015. Fidelity hasn't wavered since.

The whole situation has made Couche-Tard co-founder and executive chairman Alain Bouchard so anxious that he's gone public and suggested he might sell the multinational if the Quebec-based founders can't retain control. In an interview with Montreal newspaper La Presse published Wednesday, he called out some of his institutional shareholders in Toronto, whose governance departments were "standing high on their pedestal" and lecturing his team. He mentioned no names.

"I have to finish coming to terms with this defeat and then I'll see if there's a way to see eye to eye with those who disagreed," Mr. Bouchard told The Globe and Mail in an interview Thursday. "It takes me a long time to get over a setback. I haven't had that many in my career."

Mr. Bouchard and three other friends – co-founders Richard Fortin, Réal Plourde and Jacques D'Amours – control Couche-Tard through a special class of multiple-voting shares that carry 10 votes each despite owning just 22.7 per cent of the equity. Those special voting rights are set to expire in 2021 when the youngest of the founders turns 65, and they had gone to shareholders with a plan to extend them until the last founder leaves the board of directors.

Some key shareholders balked. Mr. Bouchard expressed his dismay, believing that the fact he made a lot of money for investors would buy him more time. Then this week, Quebec Inc. got its collective back up, with politicians pledging support for the founders.

In the Quebec media, the backroom showdown has largely been characterized as a Bay Street referendum against dual-class shares, which are more prevalent in Quebec than elsewhere in the country. In one opinion piece entitled "Wake up Toronto!," a La Presse columnist argued, in English: "We ask you no money, no candy, Toronto. Just one thing: Consider a deal with the four Couche-Tard founders that will enable them to keep control of the company. After all, hasn't their way of running the family business allowed you to make big bucks?"

But an analysis of Fidelity's stock holdings, and interviews with people in the industry, suggest that's not the main issue. For one, Fidelity is a heavy supporter of Canada's largest companies with dual-class shares and is a top-three owner of at least 13 companies with this ownership structure, including Empire Co., Fairfax Financial and Rogers Communications.

Fidelity is also a major backer of Quebec-based companies with dual-class shares. In addition to its ownership position in Couche-Tard, the mutual fund manager, whose Canadian arm is headquartered in Toronto, is the second-largest owner of CGI, Dorel and Jean Coutu.

Fidelity's specific unease with the founders' plan has more to do with concerns about the power the founders' children will have when they pass on their controlling stake in the retailer, one source said.

Fidelity is believed to have the utmost faith in Mr. Bouchard and recognizes the substantial returns to shareholders generated by him and the three other founders over the years. But that support does not automatically extend to their children, who would inherit the founders' controlling position in Couche-Tard, the source said. Even if they do not handle the day-to-day operations going forward, the children will hold power when selecting the company's future leaders and there are worries that they may not have the same business acumen as their parents.

Mr. Bouchard stressed that he's told investors that he does not intend to appoint any of his family members as head of the company. "What we want is that our families be decent shareholders, that they intervene as shareholders and not as managers," he said, adding that he has one daughter who works as a treasurer at Couche-Tard.

In the interview, the chairman sounded convinced that his battle was unwinnable. He said Bombardier Inc.'s status as a company with dual-class shares is brought up frequently in his conversations on Bay Street, which he suggested hurts his cause because of the plane maker's poor performance. He also expressed frustration that the portfolio managers that told him the proposal would pass last year weren't in sync with the governance people who make their own recommendations.

"Will we go back to our shareholders? Maybe. But I don't have the feeling we could win the vote right now. So I'm not about to be told 'no' a second time," Mr. Bouchard said.

A number of groups voiced concerns about the proposed plan last fall, including proxy advisory firms Institutional Shareholders Services and Glass Lewis & Co. The proposal was pulled before it went to a vote after Couche-Tard concluded it did not have the two-thirds support necessary from its Class B subordinate shareholders to pass.

It is common for large institutional shareholders to meet with the executives of the companies they invest in and governance experts stress this is happening more frequently. But it is rare to see the issues spill out into the press. Canadian corporations and their shareholders have a tendency to negotiate quietly, with little information leaking out.