ANKENY, Iowa -- While Casey’s General Stores Inc.’s reaction to activist investor JCP Investment Management LLC’s letter calling for a strategic review and possible sale doesn’t agree with JCP’s belief that the company is “undervalued,” it nonetheless raises the question of who could acquire the convenience-store chain if Casey’s did put it up for sale.
With Casey's being the fourth-largest c-store chain in the United States, the answer isn’t simply “round up the usual suspects.”
Newcomers to the c-store industry, rising acquirers, private-equity players and recent strategic activity have created a whole new mergers-and-acquisitions (M&A) playing field for 2018, opening speculation to other possibilities (not to mention Amazon, Walmart and even Warren Buffett as possible long shots).
Depending on whether it initiates the review JCP is seeking, Casey’s is poised to join Cincinnati-based grocer The Kroger Co.—still in the process of conducting a review of its more than 800 c-stores—in contemplating a sale, which together would put almost 3,000 stores into play if they both move forward.
Ankeny, Iowa-based Casey's owns and operates more than 2,000 c-stores in 15 mostly Midwestern states. Here is some speculation on the candidates who could go after that massive retail network …
1. Alimentation Couche-Tard
Because of its reputation as a serial acquirer, Alimentation Couche-Tard Inc., with its global Circle K brand, is the leading candidate to acquire Casey’s, according to widespread industry speculation.
With nearly 8,000 U.S. c-stores following the recent acquisitions of about 1,300 stores from CST Brands Inc., and more than 500 from Holiday Stationstores, the Laval, Quebec-based company is squaring off against 7-Eleven Inc. for supremacy in size. 7-Eleven expects to complete its acquisition of 1,100 Sunoco c-stores early this year. When it does, it will have approximately 10,000 U.S. c-stores. A Casey’s acquisition by Couche-Tard would essentially tie the game.
“Casey's 2,000 stores across 15 states are mostly in small rural, Midwest towns, so the overlap with Couche-Tard's network is believed to be modest,” Michael Van Aelst, analyst for TD Securities Inc., Toronto, said in a research note. “Moreover, Casey's locations and extensive foodservice experience/expertise could still be attractive to Couche-Tard.”
It would also be Couche-Tard’s second go at Casey’s. In a very rare exception to its long, successful history of acquisitions, Couche-Tard abandoned a hostile bid for Casey’s in 2010 after Casey’s rejected its final offer, which Van Aelst valued at approximately 8x EBITDA (earnings before interest, taxes, depreciation and amortization).
Couche-Tard Chairman Alain Bouchard has said Casey’s would be “a perfect fit” for its Midwest network.
“Given the current environment (i.e., much lower interest rates, Casey's EBITDA has doubled, etc.), we believe that Couche-Tard could be willing to pay a higher multiple, although nowhere near the 11x-12x … that JCP is arguing for,” Van Aelst said. “It is not unusual for activists to aim high.”
7-Eleven Inc., also known for major acquisitions, is another candidate to purchase Casey’s.
The Irving, Texas-based company, a unit of Seven & i Holdings Co. Ltd., Tokyo, played a role in the Couche-Tard and Casey’s saga in 2010.
Couche-Tard initially offered $36 per share to buy Casey's. It subsequently increased its offer to $36.75 and then $38.50 before it withdrew. Meanwhile, 7-Eleven stepped into the fray and offered $40 per share for Casey's, although no formal bid was made public.
It is not clear whether 7-Eleven would go after Casey’s again, but it is vying with Couche-Tard for bragging rights of possessing the most c-stores in the United States, and a Casey’s acquisition would clinch the lead for 7-Eleven.
Seven & i executives also have said that they plan to “speed up expansion in North America by accelerating acquisitions” and that they think they can double the number of 7-Elevens in the United States.
7-Eleven President and CEO Joe DePinto said the company hopes to reach the 20,000-store mark by 2027.
3. Marathon Petroleum Corp.
Instead of selling its c-stores, Casey’s could follow the path of Marathon Petroleum Corp., Findlay, Ohio, which recently conducted a review of its 2,730 Speedway c-stores and decided it was not in the best interest of shareholders to sell them or spin them off, but rather to keep them as part of an integrated company.
Now that Marathon Petroleum has moved beyond the “will it or won’t it” spinoff decision, it is again numbered among the hunters rather than the hunted in terms of acquisitions. Gary Heminger, chairman and CEO, said on recent earnings calls that Speedway has “strong growth” potential, possibly via acquisitions.
The company has already demonstrated its ability to absorb a large network of stores. In 2014, Marathon Petroleum acquired the Hess Corp. retail network, consisting of more than 1,200 locations and has converted them to the Speedway brand.
While the strategic review of Speedway was underway, Marathon Petroleum was “not going to act on anything” M&A related, Heminger said in November. But with the review done, “it just depends on if something makes sense, how big it is. We illustrated that we certainly have the competency to be able to leapfrog markets like we did when we bought Hess when we went to the East Coast, and we've been able to integrate the Hess assets very, very well into our system and exceed the synergies that we have planned.”
Santiago, Chile-based Compania de Petroleos de Chile COPEC SA (COPEC) could also be a candidate to acquire Casey’s.
In November 2016, Delek U.S. sold about 350 c-stores in seven states under the Mapco Express and other brand names to COPEC for $535 million and Mapco’s estimated cash on hand and working capital adjustment of $16.3 million.
“The acquisition of Mapco represents an important step for COPEC’s entry into the U.S. convenience-store market, which has been identified as a key strategic growth opportunity,” Lorenzo Gamuri, CEO of COPEC, said in August 2016 when the deal was announced.
5. GPM Investments
GPM wrapped up 2017 with its largest acquisition of the year when it signed an agreement Dec. 27 to acquire 273 convenience stores from E-Z Mart Stores Inc.
The company reported two other c-store acquisition deals in 2017. In July, GPM took ownership of seven Jiffy Stop Food Marts in Missouri, and in April, the company added 92 Roadrunner c-stores in four states to its portfolio through the acquisition of Mountain Empire Oil Co.
“Our company deals in growth by acquisition,” GPM spokesperson Caroline Ward said following a recent transaction. “We do not build stores from the ground up, but instead we look for quality, existing convenience stores in great locations.”