The Ankeny, Iowa-based convenience store chain has argued that its Canadian suitor's $36 per share offer was insufficient. But Martin Landry of Desjardins Securities said the 14% premium offered by Couche-Tard is even more attractive today because the 14% drop in the index since April 8 has effectively raised that premium to 28%.
That [image-nocss] is closer to the 32% median premium paid for all-cash acquisitions of U.S. companies in transactions valued at $1 billion to $3 billion in 2009 and 2010.
Casey's highlighted the premium gap in recommending that shareholders reject Couche-Tard's offer, said the report.
"While we are still a long way from a completed transaction, we believe recent stock market weakness works in Couche-Tard's favor and increases the likelihood that the Casey's transaction will be completed," Landry wrote.
He said he expects Casey's could add 20 to 30 cents per share to Couche-Tard's annual results. That would help to increase his price target for Couche-Tard shares by $2.50 (Canadian) from his current level of $21.50 (Canadian).
Landry said he expects the Laval, Quebec-based c-store operator will disclose during next week's fourth-quarter results that general inflation and its hostile takeover bid for Casey's will cost $13 million during the quarter.
Higher sales, general and administrative expense are expected reduce EPS by three cents to 20 cents. A strengthened Canadian dollar could add $24 million in expenses, acquisitions $22 million, and payment fees due to higher gasoline prices $15 million.
Revenues are expected to surge to nearly $4.1 billion due to a 38% increase in fuel prices in the United States and a 29% increase in Canadian pump prices.
A joint venture with Shell in Chicago and the acquisition of 43 stores in the Phoenix area are expected to add about $145 million in revenue.
Couche-Tard may extend its July 9 midnight deadline for Casey's shareholders to tender their shares if they have not secured enough of the target company's stock.
But if about half the shares have been tendered, it will likely disclose that to "send a signal" to Casey's management and board of directors that the majority of shareholders favor the deal.
"There would therefore likely be significant pressure on Casey's management to sit down with Couche-Tard and come to an agreement," Landry added, noting that Casey's still has a poison pill if the board remains opposed to the transaction.
Casey's and Couche-Tard have been in a legal tug of war since the hostile takeover bid was made public in early April.
The U.S. operator of 1,500 stores accused North America's second-largest c-store chain of stock manipulation. Couche-Tard countered by challenging the constitutionality of an Iowa business law.
Long-term institutional investor ClearBridge Advisors then urged Casey's board to sit down with Couche-Tard in the best interests of all shareholders. Last week, an Iowa veterinarian launched a class-action lawsuit to block any material changes to Casey's business and assets unless the chain's strategic options are evaluated under the supervision of the court. The suit alleges the company and its board breached their fiduciary duty to shareholders by refusing to negotiate with Couche-Tard.
The action is the second class-action complaint filed in Iowa court. Another one was filed April 28.
Casey's declined to comment to the news agency on the class-action suits.
In a regulatory filing, the company said it does not have to respond to the complaints until the plaintiffs file amended complaints or each informs Casey's that it will not amend its initial complaint.
(Click here for previous CSP Daily News coverage of the Casey's/Couche-Tard saga.)
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