Tug of War Becomes Love Triangle?

Casey's rebuffs Couche-Tard again; Couche-Tard calls third party's $40 offer "suspicious"

ANKENY, Iowa -- U.S. and Canadian retailer Alimentation Couche-Tard Inc.'s bid to acquire Midwestern chain Casey's General Stores Inc. has just gotten more complicated. As Casey's board unanimously recommend against shareholders accepting Couche-Tard's revised tender offer to acquire Casey's for $38.50 per common share, it also announced that it has received a preliminary proposal from a "strategic third party" regarding a consensual transaction at $40 per share in cash.

That news triggered immediate speculation. Charles Cerankosky, an analyst with Northcoast Research, Cleveland, [image-nocss] told Bloomberg that a possible suitor is Sun Capital Partners, Boca Raton, Fla. "They already operate in some states Casey's has stores in, so it might be a good fit," he said. Sun Capital owns VPS Convenience Store Group, which operates approximately 400 stores in several states including Indiana, Michigan and Ohio.

The company, which focuses on leveraged buyouts of companies in many different industries, has about $8 billion of equity capital under management and on its website said it can invest more than $2 billion in any single transaction, certainly within the price range of Casey's. The $40 a share proposal would value Casey's at more than $2 billion.

Analyst Ben Brownlow of Morgan, Keegan & Co., Memphis, Tenn., said Couche-Tard misplayed its hand through the five-month process and may have awakened others to its target's value.

"I think they should have come through with a serious bid to begin with, and they probably would not have gone through this long drawn-out process," he told the Canadian Press.

But he would not rule out private equity in combination with a small operator, industry-leader 7-Eleven or a large oil company.

Martin Landry, an analyst at Desjardins Securities, Montreal, told CBC News that the emergence of a third-party bidder is bad news for Couche-Tard because it could force the company to increase its bid yet again.

"Being the sole interested party had been a strong bargaining chip for Couche-Tard; however, until a formal offer is made to Casey's shareholders, there will be substantial uncertainty related to the viability of the third-party bid," he wrote in a report.

Casey'swith 1,531 stores in nine statesfiled an amended Schedule 14D-9 with the Securities & Exchange Commission (SEC) yesterday detailing its rationale for the recommendation against the Couche-Tard offer, which it said "substantially undervalues Casey's and is not in the best interests of Casey's, its shareholders and other constituencies."

And as reported in a Morgan Keegan/CSP Daily News Flash yesterday, the company's board has also determined that the unnamed third party's proposal "substantially undervalues Casey's."

Robert Myers, president and CEO of Ankeny, Iowa-based Casey's, said in a letter to shareholders: "While the board firmly believes that Casey's value substantially exceeds $40 per share, it has authorized discussions with the third party to explore whether a transaction can be reached that reflects the true value of Casey's and is in the best interests of Casey's, its shareholders and other constituencies. The company noted that there can be no assurances that a transaction will be reached and that it is under no legal obligation to provide an update on the discussions with the third party."

Reacting to Casey's revelation of a new interested party, Couche-Tard said, "We are pleased that...the Casey's board of directors has finally made the decision to put the company up for sale. Couche-Tard looks forward to participating in Casey's auction process. We are, however, surprised and suspicious of the timing of the announcement by Casey's given that it comes only two weeks before the annual meeting of shareholders of Casey's and only days after the completion of its self-tender. We believe this is another maneuver orchestrated by the Casey's board to artificially inflate its stock price leading up to the shareholder vote."

Couche-Tard's statement added, "With the annual meeting rapidly approaching, Casey's shareholders should ask themselves: Why did the Casey's board suddenly authorize discussions with a third party regarding only a preliminary, nonbinding indication of interest after it has repeatedly refused to meet with or negotiate with Couche-Tard over an extended period of time regarding Couche-Tard's firm, all-cash, fully financed premium offer to acquire all of the outstanding shares of Casey's?"

"Given the recent actions by the Casey's board, including the apparent favoritism that Casey's is showing a potential buyer (who has only expressed a preliminary, nonbinding proposal), the 'poison put' implemented in its recent leveraged recapitalization plan, and the suspicious timing of [the third-party] announcement only weeks before the annual meeting, we strongly believe that Casey's shareholders deserve to be represented by independent directors who will act in the best interests of all Casey's shareholders and conduct a fair auction of Casey's. Couche-Tard's independent director nominees, if elected to the Casey's board, are committed to fully considering any and all bona fide offers to acquire Casey's, including Couche-Tard's offer and any other premium proposal to acquire Casey's."

Couche-Tard said earlier yesterday that it mailed a letter and proxy card to the shareholders of Casey's General Stores Inc. in connection with the 2010 annual meeting of shareholders of Casey's to be held on September 23, 2010. Couche-Tard urged Casey's shareholders to vote to elect its eight new, independent nominees to the Casey's board.

In the letter, Alain Bouchard, president and CEO of Couche-Tard, said, "We strongly believe that Couche-Tard's all-cash, fully-financed premium offer is the most attractive strategic alternative available to shareholders of Casey's, and delivers immediate cash value superior to what Casey's can deliver continuing as a standalone company."

The letter added that the results of Casey's $38 self-tender demonstrates that Couche-Tard's $38.50 offer is compelling, and that the Casey's board and management "are not serving shareholders' best interests."

Click herefor the full release.Casey's sent a letter to shareholders saying, "We believe both of these proposals substantially undervalue Casey's for a number of reasons, including: Casey's value proposition has dramatically increased since Couche-Tard launched its hostile offer in April through the execution of our strategic initiatives and successful recapitalizationboosting Casey's ability to deliver shareholder returns. Analysts see Casey's intrinsic value at $45 per sharewithout reflecting a takeover premium. Casey's continues to deliver strong financial and operational results including increasing its total stores and dividend. Casey's significant value is not reflected in Couche-Tard's offer or the third party proposalboth represent low premiums. "Casey's first-quarter fiscal 2011 results [see related story in this issue of CSP Daily News] demonstrate that we are continuing to execute well on our strategic initiatives to drive growth and shareholder value."

As evidence, the company cited an increasing store count, strong gasoline volumes and margins, "industry-leading" inside same-store sales margins and a strong balance sheet.

"Don't turn the keys over to Couche-Tard at this critical time in Casey's history," the letter concluded.

Click hereto read the full letter.

Laval, Quebec-based Couche-Tard operates a network of 5,878 c-stores, 4,141 of which include motor fuels dispensinglocated in 11 large geographic markets, including eight in the United States (operating primarily under the Circle K name) covering 43 states and the District of Columbia, and three in Canada (operating primarily under the Mac's and Couche-Tard names) covering all 10 provinces.

(Click here for previous CSP Daily News coverage of Casey's and Couche-Tard.)