"Couche-Tard's opportunistic proposal is attempting to capture the significant current and long-term value that rightly belongs to Casey's shareholders," said Casey's president and CEO Robert Myers. "Couche-Tard is trying to acquire U.S. companies on the cheap."[For a timeline of the negotiation, see related story in this [image-nocss] issue of CSP Daily News.]
Ben Brownlow, analyst for Morgan Keegan & Co., Memphis, Tenn., generally agreed. "Couche-Tard is trying to take advantage of a depressed environment for the group in general," he told CSP Daily News. "I think they're just looking at it as an opportunity to pick up a very good company that has a very good presence and brand recognition at a deep discount."
Couche-Tard, however, said its 7.4X EBITDA multiple and average $1.3 million per store prices is not only fair, but "compelling."
The offer "presents an exciting opportunity to create significant value for our respective shareholders, employees, business partners and other constituencies," Couche-Tard president and CEO Alain Bouchard said in a public letter to Myers.
With approximately 52 million shares of stock issued, the proposed deal amounts to about $1.836 billion, a 14% premium over Casey's $31.59 closing price on Thursday; however, since the offer became public, the Iowa-based c-store retailer's shares jumped more than 23% to $39 in midday trading Friday. In contrast, Couche-Tard's value dropped 12 cents per share on the Toronto stock exchange.It hasdropped 13% this year before Friday.
Michael Smith, partner at Kansas City Capital Associates, a division of Oppenheimer, told The Wall Street Journal that Casey's could be worth at least $40 per share based on its future earnings potential, noting that a potential negative about the U.S. company is that "they haven't been aggressive about square footage growth, but management has kept the balance sheet clean and stores operate profitably."
Brownlow sees Couche-Tard's attempted acquisition as more of a merger vs. an all-out takeover bid. "When you look at the size of Casey's (1,500 stores), and if you look at the market cap of Couche-Tardit's a $2.3 billion market capand they're proposing a $1.9 billion enterprise value acquisition of Casey's. You look at the size and it's almost nearly a merger," he said. "Obviously Casey's board views it as a lowball offer. They've been rejecting the offer since October. And the market obviously thinks it's a lowball offer because it's trading up."
Bill Chisholm, a retail analyst at MacDougall, MacDougall and MacTier in Toronto sees a long road ahead for the U.S. company. In an interview with Reuters, he said, "If [Couche-Tard] could get [Casey's] at $36, I think it would be a very good deal. Casey's is a very good business. I think it will be drawn out. I think Couche-Tard is determined, and they will make their bid. If no other players come to the game, they might be successful."
Chisholm noted that he doubted the process would devolve into a bidding war, adding that there are "probably" no other c-stores that would come in with a higher offer.
Casey's senior vice president and CFO Bill Walljasper told CSP Daily News the company is not considering acquisition offers from any other potential buyers.
In a released statement from Martin Landry of Desjardins, an analyst who has previously worked closely with the Canadian c-store juggernaut, he said that he suspects the company may need to raise its offer price and noted "that there might be a limited number of alternate suitors."
"To our knowledge, Casey's does not have a controlling shareholder, and management holds approximately 2% of the shares. For the moment, there does not appear to be any poison pill that could impede the transaction," he said.
Casey's owns and operates more than 1,500 c-stores in nine Midwestern states: Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin.
Couche-Tard currently operates a network of 5,883 c-stores, 4,142 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States under the Circle K banner covering 43 states and the District of Columbia, and three in Canada under the Mac's banner covering all 10 provinces.
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