While they are likely not a show-stopper, each side's claims have the potential for important judicial opinions on [image-nocss] takeover law, he said. (Read the following excerpt, andclick here to read the full column, including details and links to relevant case law.)
In its lawsuit, Casey's argues that Couche-Tard has engaged in market manipulation with respect to Casey's stock. The core of Casey's allegations rests on Couche-Tard's acquisition of about 3.9% of Casey's stock prior to its announcement of its hostile offer. On the day the offer was announced, Couche-Tard then sold the bulk of that stake on the public market without an announcement, profiting to the tune of more than $10 million. Casey's is alleging that the sale of this amount of stock in such a short period constituted a market manipulation scheme.
Couche-Tard has countered by filing a lawsuit with much broader claims. Couche-Tard's first claim is a standard one in hostile litigation, alleging that the Casey's board is breaching its fiduciary duties by failing to recommend and accept Couche-Tard's offer and remove all barriers to that offer.
The second set of claims, though, is a throwback from the 1980s. Couche-Tard is arguing that Iowa's antitakeover statutory scheme is unconstitutional because it is pre-empted by the Williams Act (the federal rules governing tender offers), violates the Constitution's commerce clause and is a seizure of shareholder property in violation of the takings clause.
Casey's market manipulation claims are actually twofold. The first is a market manipulation claim based on the antifraud provisions in Section 10(b) and Section 14(e) of the Exchange Act of 1934.
Casey's alleges that Couche-Tard violated these laws by selling its Casey's shares in the first hour after the announcement of the hostile offer in order to depress Casey's stock price and make Couche Tard's offer seem more attractive.
The sale was material because, in the words of Casey's, "[a] reasonable investor, in deciding how to invest, would have considered it important that Couche-Tard intended to implement a pump and dump scheme and to artificially depress the price of Casey's stock."
The second claim is more specific and alleges a violation of Rule 14e-8 promulgated under the Exchange Act. This rule deems it to be a fraudulent and manipulative act if a person "plans to make a tender offer that has not yet been commenced, if the person...[i]ntends, directly or indirectly, for the announcement to manipulate the market price of the stock of the bidder or subject company."
The claim is that Couche-Tard announced this offer with the intent of selling the stock and depressing the stock price of Casey's.
Couche-Tard's actions are unusual, but the validity of Casey's claims will really depend on what Casey's can find in the discovery process.
If Couche-Tard was careful and the evidence showed that the decision to sell Casey's stock was made after the announcement, then the market manipulation claim and the 14e-8 claim could be hard to establish.
Even if evidence shows there was a preplanned stock sale, Couche-Tard is likely to claim that its acts were simply legal sales that took advantage of an undue rise in Casey's stock price. Any effect on the market price was transitory at best and not the intent of these sales.
But even if Casey's succeeds, the remedy is likely to be disgorgement or a fine, not an injunction barring Couche-Tard's offer.
In contrast, Couche-Tard's claims are a full-frontal attack on Iowa's antitakeover statutes.
Couche-Tard's main claim is that the Iowa antitakeover statutory scheme is pre-empted by the Williams Act because of the failure to provide any meaningful opportunity for success and because it prohibits a hostile offer from succeeding where board approval is not forthcoming.
Iowa has a business combination statute, a poison pill authorization statute and a constituency statute, but the focus is on the business combination statute.
The true effect of the antitakeover statutes is obscured by the effect of a poison pill.
Since a poison pill is the first line of defense, these antitakeover statutes are seldom, if ever, really implicated and so there is little hard evidence on their effect.
Davidoff said he is skeptical that this claim will succeedand even then it will not prevent Casey's from deploying a poison pill.
Couche-Tard also raises the dormant commerce clause argumentnamely that the Iowa takeover statute infringes unduly on interstate commerce. This claim, however, is a hard one to prove, given the fact that the statute as applied here is to an Iowa-incorporated company.
If the court strikes down this statute, it would implicate the validity all of the antitakeover statutes.
Casey's has moved for expedited proceedings on its market manipulation claims. This means that the company is unlikely to try to extend its shareholder meeting beyond the current statutorily required end of October.
So, while the litigation proceeds and the parties attempt to score public relations points, the real battle will come when there is a proxy contest in the fall, once Casey's has scheduled an annual meeting and record date for shareholder voting. Of course, this assumes that Casey's does not take any game-changing defensive actions. (Click here to read Davidoff's previous column discussing Casey's options.)
Couche-Tard has to some extent boxed itself into a maximum price that it can pay with its stock sales.
Thus, the real issue will be whether Couche-Tard's current offer, or whatever increase it might make up to its sale price, is compelling enough to win a proxy contest or at least appear close enough to winning to bring Casey's to the table or prevent Casey's from taking any extreme measures.
Davidoff is a commentator for The New York Times' DealBook on the world of mergers and acquisitions. A former corporate attorney at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. His research focus is on corporate governance, regulation of hedge funds, mergers and acquisitions and securities regulation.
Click hereto read the full column, including details and links to relevant case law.
(Andclick here for previous CSP Daily News coverage of the Casey's/Couche-Tard saga.)
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