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The Vote

Will Casey's remain an independent brand? Will it be the oyster of the Midwest?

ANKENY, Iowa -- The wait ends tomorrow.

For nearly six furious months, Alimentation Couche-Tard has waged a furious public battle to acquire the c-store emerald of the Midwest, Casey's General Store.

Tomorrow, Casey's stockholders will choose between the incumbent slate or an alternative one proposed by Couche-Tard. Either way, the outcome means change for the bread basket's largest convenience operator.

Should Couche-Tard, with a current tender of $38.50 per share, pull the upset, they will become the largest c-store chain in North America.

Casey's [image-nocss] has rebuffed each maneuver from the Quebec giant, countering that a quick sale to Couche-Tard would undermine true valuea position supported by several key shareholder groups but not all.

But even if Casey's is successful and its incumbent board is returned, don't expect a "life-as-usual" scenario. The company has already exerted greater effort to consolidate via acquisitions in its core markets. As well, the board in late July launched a $500 million recapitalization plan to generate greater value for Casey's shareholders.

Will Casey's remain an independent brand? Will it be the oyster of the Midwest?

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

In a stunning announcement, the company earlier this month announced it had entered into
preliminary negotiations with a third party pertaining to a friendly takeover. Couche-Tard immediately dismissed the move as a bluff. Shortly after, Casey's confirmed it was no bluff at allthe third party was the only retailer in the United States and Canada that is actually bigger than Couche-Tard7-Eleven.

Are the preliminary talks a ruse? Would 7-Eleven, itself a once publicly traded outfit that has shifted to a franchise-exclusive retail model, truly entertain an acquisition of this scale, including in many markets where its presence is no better than token?

Unlike the vociferous lobbying of Couche-Tard, 7-Eleven has been deliberately quiet, declining to even confirm it has made a nonbinding tender of $40 per Casey's share.

So, on Thursday, Casey's stockholders will decide the direction of their company. They have already benefitted by the hoopla. Since Couche-Tard went public with its takeover intentions in April, Casey's shares have climbed nearly 37%.

What will be the headline Friday morning? I expect Casey's board to win a solid victory, garnering at least 60-65% vote of the vote. Casey's will continue to post modest-size acquisitions and roll out a small number of ground-ups.

What, for me, is most challenging is how to assess the seriousness of 7-Eleven's interests in the entire Casey's chain. Over the past decade, 7-Eleven has engaged in a number of acquisitions, most typically fewer than 100 stores. The largest orchestrated by current owners Seven & I Holdings Co., was the April 2006 purchase of White Hen Pantry, a roughly 260-store operation centered in the greater Chicago area.

Casey's would represent a deal five times that size and in an entirely different marketplace. Whereas White Hen's geography neatly coalesced with 7-Eleven's preference for urban and suburban markets, Casey's footprint is most frequented by those in rural outposts and small towns.

As well, White Hen was already in the franchise business, giving 7-Eleven a wellspring of potential operators to negotiate with and indeed many of those White Hen franchisees eventually renegotiated with 7-Eleven and continue to operate those locations.
Casey's, on the other hand, is proudly company-run and its stores are directed not on the store level, but by headquarters in Ankeny.

At the end of the day, this is what I see: Casey's board will win a solid victory Thursday, it will enter into negotiations with 7-Eleven, agree to sell up to 100 to 150 sites that tie into 7-Eleven's growth strategy, but retain the rest of its portfolio.

Casey's board will face stiffer expectations to deliver a higher value to stockholders and it will embrace a somewhat more aggressive strategy to consolidate what remains a highly fragmented Midwestern c-store landscape.

In the end, the Casey's brand will live on.

Editor's Note: What do you think will happen to Casey's? Email your thoughts to Mitch Morrison atmmorrison@cspnet.com (and please let us know if we can post your thoughts in CSP Daily News.)

Also, coming in October, CSP magazine delivers an exclusive, behind-the-scenes analysis of Couche-Tard's yearlong hostile pursuit of Casey's.

Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.

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