ANKENY, Iowa -- The board of directors of Casey's General Stores Inc. continued its attempts to derail Alimentation Couche-Tard Inc.'s hostile takeover bid this week, rejecting Couche-Tard's revised stock-tender offer of $36.75 per share, and also announcing a $500 million recapitalization plan, essentially outbidding the proposed acquirer by offering to buy back the company's common stock at a price of $38 to $40 per share.
"[The] $500 million recapitalization plan...will generate significant value and enhanced returns for Casey's shareholders while allowing us to continue [image-nocss] executing on our strategic growth initiatives," said Casey's president and CEO Robert J. Myers. "The Casey's board believes our stock is meaningfully undervalued at recent trading levels and that the company is underlevered given Casey's strong balance sheet and consistent cash flow."
The recapitalization plan, which Casey's said will allow the company to execute upon its growth plan, will be conducted through a modified "Dutch auction," self-tender offer for up to $500 million of the company's common stock (equating to about 25% of its shares) and will be funded by a combination of debt financing and available cash.
As reported in a Morgan Keegan/CSP Daily News Flash, Casey's believes the recapitalization plan:
Will generate significant value for Casey's shareholders. Will be highly accretive to its diluted earnings per share at all prices in the offer range. Will allow shareholders to continue participating in the company's substantial upside. Is financially prudent given the company's strong balance sheet and careful use of capital.The move comes six days after Couche-Tard raised its stock-tender offer from $36 per share to $36.75, a revision Casey's board unanimously rejected.
"After careful evaluation, the Casey's board unanimously recommends that our shareholders do not tender their shares into Couche-Tard's inadequate $36.75 per share offer," said Myers. "Our plan to repurchase a substantial portion of Casey's shares enables us to acquire approximately 25% of the best operator in the convenience-store sectorCasey'sat a very attractive price. On the contrary, Couche-Tard does not believe in the true value of Casey's, as evidenced by its CEO's comment in its 2010 Annual Report: 'When speculators moved [Casey's] stock above $38 on the day of announcement, we simply knew at that time that we would not be buyers at that level'."
Thus, Casey's recapitalization plan effectively outbids Couche-Tard for one-quarter of its own shares, a move one Couche-Tard stock analyst said makes "the likelihood of a transactionmore remote."
"We view this new strategy by Casey's management as a significant roadblock for Couche-Tard in its plan to acquire Casey's shares," wrote Martin Landry of Desjardin Securities in a research note yesterday. "If Couche-Tard intends to continue to pursue the acquisition of Casey's, it will likely need to raise its offer price above the range offered by Casey's in its Dutch auction. However, previous indicationssuggest that Couche-Tard is likely to refrain from raising its bid above that threshold."
Couche-Tard responded to Casey's announcement yesterday by voicing its dismay. It isn't, however, throwing in the towel.
"We are disappointed that the Casey's Board of Directors has rejected our increased $36.75 cash offer and has initiated a recapitalization for only 25% of the shares without even sitting down to talk to us," said president and CEO Alain Bouchard. "We will continue to evaluate our options."
As previously announced, on July 22, 2010, Couche-Tard increased the offer price in its pending tender offer, being made through an indirect wholly owned subsidiary, to acquire all of the outstanding shares of common stock of Casey's from $36 to $36.75 per share in cash. The increased offer price implies a total enterprise value of approximately $1.9 billion.
Couche-Tard's tender offer expires Friday, August 6, but could be extended. Casey's Dutch auction offer commenced today, July 29, and is scheduled to expire on Wednesday, August 25, unless extended. (Click the "Download Now" button below to view Casey's complete offer.)
As of yesterday afternoon, Casey's stock was trading for $37.64 per share.
Credit Suisse Securities (USA) LLC is acting as financial advisor to Couche-Tard and dealer manager for Couche-Tard's offer. Dewey & LeBoeuf LLP and Nyemaster, Goode, West, Hansell & O'Brien P.C. are acting as legal counsel. Innisfree M&A Inc. is acting as information agent for Couche-Tard's offer and proxy solicitor in connection with Couche-Tard's solicitation of proxies at the 2010 annual meeting of shareholders of Casey's.
Goldman, Sachs & Co. is acting as financial advisor to Casey's, and Cravath, Swaine & Moore LLP and Ahlers & Cooney PC are providing legal advice.
Laval, Quebec-based Couche-Tard operates a network of 5,883 convenience stores located in 11 large geographic markets, including eight in the United States covering 43 states and the District of Columbia, and three in Canada covering all 10 provinces.
Casey's General Stores, based in Ankeny, Iowa, has 1,513 corporate stores in nine states.
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