Fight to the Finish

Historic takeover battle for Casey's rages on.

Mitch Morrison, Vice President of Retailer Relations

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Among analysts and financial experts, there is great debate: Will the deal happen?

In late July, Casey’s board announced a half-billion-dollar recapitalization plan that essentially outbids Couche-Tard’s tender, by offering to buy back the company’s common stock at a price of $38 to $40 per share. “This, to me, is one of the most significant moves that happened since we learned about Couche-Tard’s desire to buy Casey’s,” says one financial expert.

“This is Casey’s last-ditch effort. At a minimum, it drives up the price and forces Couche-Tard to think about whether to talk away from the deal or to raise their offer.”

And Couche-Tard chose to raise its offer. Several observers interviewed praise Couche-Tard’s rigorous self-discipline and agree that the company will not overpay to tuck Casey’s into their expanding portfolio.

“They may go to $40 a share, but we’re not going to see multiples of 8 or 8.2 (EBITDA),” one financial veteran says. “That wouldn’t make financial sense, and it’s not how Couche-Tard operates based on their track record.”

In fact, as of the second week of September, Couche-Tard had muscled up its offer from $36.75 per share to $38.50. In this quake of oneupmanship, the tender rendered a tangible rumble. But as the plates threatened greater movement in Couche-Tard’s favor, Casey’s quickly delivered its own thrust, confirming that venerable c-store giant, 7-Eleven, had jumped to the fore with a $40- per-share tender.

A bluff? Absolutely, some analysts first thought. But while 7-Eleven remained mum, U.S. and Canadian retail experts began to murmur about the greatest acquisition fight in c-store history, with North America’s two biggest chains vying for the U.S. Midwest’s largest player. Many have assigned Sept. 23 as the fateful day, when Casey’s shareholders convene to vote on the future of this respected operator. The company could enter into takeover talks with one company and decide at the end of the day that it is best to remain independent. Or, just as possibly, it could land in the hands of 7-Eleven or Couche-Tard.

In an era of historically low interest rates and, for powers such as Couche- Tard and 7-Eleven, pocketfuls of cheap money, it may be hard to imagine the Casey’s name surviving for long. And when one looks at Couche-Tard’s cavalier expansion over the past decade, it is hard not to believe that Casey’s represents the pinnacle of its acquisition prowess.

It was nine years ago when Couche- Tard sprung onto the American scene with its purchase of 225 Bigfoot stores from Columbus, Ind.-based Johnson Oil Co. “We are very happy to announce this agreement after a thorough study of the U.S. market,” Bouchard said, in a seemingly prescient manner, of the company’s relatively modest $66-million foray onto U.S. soil. “It enables us to make an initial and promising breakthrough in the United States, in the high-potential Midwest market.” Little has changed. The Midwest remains highly fragmented and rife with potential consolidation.

For Couche-Tard—as well as for 7-Eleven—the acquisition of Casey’s may not ultimately hinge on classic financial multiples, but on the ability to access vast dollars at a highly favorable interest rate.

In the end, it may be too expensive for Couche-Tard or 7-Eleven not to buy Casey’s. Yet at the same time, for an iconic Midwestern brand, the final straw may be less about the highest dollar than about holding onto its roots. 

In This Corner

Alimentation Couche-Tard

Founded: 1988

Headquarters: Laval, Quebec

Store count: nearly 5,900 in North America, in 43 of the United States and the District of Columbia

Key Financials: Per-store pretax profit: $89,000 (based on approximately 4,400 corporate-run stores across the United States and Canada; only 40% of Canadian stores have fuel, whereas 90% of U.S. sites sell fuel.) Per-store revenues are $3.7 million in North America.

Casey’s General Stores Founded: 1959

Headquarters: Ankeny, Iowa

Store Count: 1,531 across 11 states

Key Financials: Per-store pretax profit of approximately $121,000 (based on a roughly 1,500-store count). Per-store average revenues are $3.1 million. 

Casey’s Growth

2007: On April 12, Casey’s General Stores Inc. acquires 10 Holiday convenience stores in Nebraska and Iowa. 2008: At end of fiscal year 2010, Casey’s reports it acquired 37 stores and built 18 stores. New stores feature larger coffee and fountain offerings, made-to-order sub-sandwich program and expanded cooler capacity. 2011: Goals: to replace 20 stores with new, larger prototype, and expand into new markets and states, including contiguous markets in Arkansas, Michigan and Tennessee. 

Couch-Tard’s 21st Century History: Let’s Make a Deal

2000: Alimentation Couche- Tard enters the 21st century as the ninth-largest convenience retailer in North America with 1,625 stores, including 460 with fuel islands. Company employs roughly 11,500 across its network and at head office.

2001: Couche-Tard breaks into the United States, acquiring 225 Bigfoot stores from Johnson Oil Co. Inc. Stores are located in the Midwest and boast a strong track record. • Acquires R-Con Centres Inc., Mac’s master franchise in Manitoba, and six Midwestern stores from BP.

2002 : Acquires 12 stores from Bruce Miller Oil Co., 16 Handy Andy Food Stores and 287 Dairy Mart stores in the Midwest. • In Quebec, acquires its first network of nontraditional stores, Tabatout, a network of 30 locations; move is part of a new strategy to develop a network of stores located in high-traffic areas such as office buildings, shopping centers, airports and subway stations.  

2003: Acquires 92 Dairy Mart stores and 43 stores from Clark Retail Enterprises in the Midwest. • Enters into agreement with Allied Domecq Quick Service Restaurants (ADQSR), whereby Couche-Tard acquires the master franchise of Dunkin’ Donuts throughout Quebec: 104 Dunkin’ Donuts restaurants. • Acquires Circle K Corp. from ConocoPhillips Co. Deal includes 1,663 Circle K corporate stores across 16 States and a franchise/licensing agreement for another 627 stores.  

2004: Acquires 22 stores from Shell Oil Products in Arizona. Stores are converted to Circle K 

2005: Signs agreement with Allied Domecq Quick Service Restaurants to develop 65 Dunkin’ Donuts in Ohio over the next six years. • Adds 78 stores, all located in the United States. • Signs agreement with ConocoPhillips to convert an additional 75 stores of ConocoPhillips’ network to Circle K. • Couche-Tard grants a master franchise agreement to a subsidiary of Grupo Kaltex, S.A. de C.V., to open 250 Circle K stores over five years in Mexico.

2006: Acquires 90 stores operated under the Spectrum banner in Georgia and Alabama, 24 stores from Sparky’s Oil Co. in West Central Florida and 54 stores in Ohio from Holland Oil Co. • Acquires 236 sites from Shell Oil Products U.S. and its affiliate Motiva Enterprises LLC. Sites are converted to Circle K and are located in or near Baton Rouge, Denver, Memphis, Orlando, southeast Florida and Tampa. • Acquires 13 stores in Pensacola from Gichcor Inc. Stores operated under the name Groovin Noovin

2007: Acquires 53 stores that operated under the All Star banner from Star Fuel Marts LLC, located in Oklahoma City; and 28 stores that operated under the Sterling banner from Sterling Stores, LLC, northwest Ohio. • Does sale-leaseback transaction with Cole Capital for 83 properties.

2008: Acquires 15 stores operating under the Speedway banner from Speedway SuperAmerica, LLC, located in central Illinois. • Slows aquisition rate on heels of the recession

2009: Acquires 8 stores in central North Carolina from Accel Marketing LLC, which operates under the Accel banner. 

Notable Quotables: Alain Bouchard vs. Robert Myers


April 9, in a letter to Casey’s board of directors: “Despite our repeated efforts starting in October 2009 to engage in negotiations, and without the benefit of discussing our proposal with us or our advisors, your board of directors unanimously rejected our proposal. … However, due to your unwillingness to engage in discussions and the unique opportunity presented by our proposal for your shareholders to realize full and immediate value, we are compelled to make this proposal known to your shareholders.”

June 7, on nominating its own slate to the Casey’s board: “Though it remains our strong preference to enter into a negotiated transaction with Casey’s, we are committed to pursuing a combination of our two companies. We are confident that these nominees will serve in the best interests of Casey’s and its shareholders.”

Sept. 1, in response to Casey’s agreeing to buy 25% of its outstanding shares for $38: “We believe that our revised offer is the most attractive strategic alternative available to the Casey’s shareholders and delivers immediate cash value superior to what Casey’s can deliver continuing as a stand-alone company. … We remain ready, willing and able to complete a transaction with Casey’s expeditiously.”

Myers: April 9, as Casey’s rejects Couche-Tard’s unsolicited bid: “Dear Mr. Bouchard: We are very disappointed that you have decided to launch a hostile public campaign regarding your unsolicited proposal to acquire Casey’s for $36.00 per share in cash. As we previously informed you, our board of directors takes its fiduciary duties very seriously and unanimously determined to reject your proposal. … Your proposal significantly undervalues Casey’s and is not in the best interests of the corporation.”

June 8, in response to Couche-Tard nominating a slate to the Casey’s board: “Our board’s position is clear: Shareholders should reject Couche-Tard’s offer and not tender their shares. We believe this is a self-serving and transparent attempt by Couche-Tard to take significant value that rightly belongs to Casey’s shareholders.”

July 28, upon launching a $500-million recapitalization plan: “[The] $500-million recapitalization plan ... will generate significant value and enhanced returns for Casey’s shareholders while allowing us to continue executing on our strategic growth initiatives.”

Sept. 7, as Casey’s rejects Couche-Tard’s $38.50 tender and unveils a surprise: “Casey’s received a preliminary proposal from a strategic third party regarding a consensual transaction at $40 per share in cash.”    

Timeline: Going after Casey’s  

October 2009: Alimentation Couche-Tard privately approaches Casey’s General Stores with a bid to acquire the 1,531-store chain for $36 per share, estimated at $1.9 billion. Board unanimously rejects the offer and shows no interest in entering into negotiations.

April 9, 2010: Couche-Tard resubmits its offer to the Casey’s board of directors. But this time, the Quebec chain makes its bid public.

April 9: Casey’s publicly rejects the offer and deems Couche-Tard’s foray a hostile takeover bid.

June 2: Casey’s advises shareholders not to take any action regarding the Couche-Tard tender

June 7: Couche-Tard says it plans to nominate a nine-member slate to the Casey’s board at Casey’s 2010 annual meeting of shareholders.

June 11: Casey’s files a complaint in federal district court, alleging Couche-Tard has violated federal securities laws in connection with its unsolicited tender offer. Casey’s accuses Couche-Tard of manipulating markets to acquire outstanding shares at an artificially deflated price. The complaint centers on Couche- Tard’s divestment of nearly 2 million Casey’s shares shortly after making public its bid to acquire Casey’s. Couche-Tard emphatically denies any wrongdoing.  

July 22: Couche-Tard increases its offer from $36 to $36.75 a share

June 28-30: Some Casey’s shareholders urge management and the board to enter into good-faith negotiations with Couche-Tard. Leading the charge is ClearBridge Advisors LLC, New York, which, as of late June, owned 1.6% of Casey’s common stock. A third suit is filed a month later by the Kentucky State District council of Carpenters Pension Trust Fund, which accuses the Casey’s board of “disproportionate, draconian and preclusive defensive measures” that have hurt investors

July 28: Casey’s board unanimously rejects Couch-Tard’s revised stock tender of $36.75 per share. Board also announces 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.

Sept. 1: Couche-Tard counters with a new offer of $38.50 per share—$1.75 higher than its earlier tender. The move comes after Casey’s agrees to buy 25% of its outstanding shares for $38

Sept. 7: Casey’s board unanimously recommends against Couche-Tard’s latest bid. It also announces it has received a preliminary proposal from a strategic third party regarding a consensual transaction of $40 per share in cash. The third party is later revealed to be 7-Eleven. 

7-Eleven’s Late Move on Casey’s

For more than a year, Alimentation Couche- Tard homed in on Casey’s General Stores. Plan after plan, bid after bid. Each was rejected, only to be followed by a mildly sweetened offer.

And yet, in early September, a new player swooped in and immediately captured the affections of Casey’s senior leadership.

Analysts have long agreed that only one potential bidder could topple Couche- Tard from its apex: 7-Eleven. The largest convenience chain in the world, 7-Eleven is sufficiently capitalized and boasts the necessary corporate infrastructure to undertake a deal of this scale.

While 7-Eleven declined comment as CSP went to press, Casey’s confirmed that the Dallas-based convenience behemoth had offered $40 per share, placing the onceconfident Couche-Tard on the defensive.

By the time this story appears, Casey’s shareholders will have voted on a course of action at their Sept. 23 annual meeting. Such a vote, analysts suggest, will not conclude a deal, but simply begin the process of potential exclusive negotiations—if negotiations even proceed.

As Canaccord Genuity analyst Derek Dley told The Financial Post, “We’re going to see a long, drawn-out battle.”

Indeed, amid all the uncertainties, Dley’s observation is perhaps the only thing that is certain: The battle has begun.


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