Casey's under pressure to deliver after vote

TORONTO Thu Sep 23, 2010 6:20pm EDT

Related Topics

TORONTO (Reuters) - After a resounding vote of confidence from its shareholders on Thursday, Casey's General Stores must deliver on its strategy of rejecting a firm, $2 billion takeover bid in favor of a less certain embrace by the world's No.1 convenience store chain.

Even though Casey's (CASY.O) investors rejected a slate of directors nominated by Alimentation Couche-Tard (ATDb.TO), the Montreal-based company is unlikely to abandon its five-month effort to swallow Casey's.

Instead, Couche-Tard will probably extend its $38.50-a-share bid at least until Japan-based 7-Eleven makes official the non-binding, $40-a-share offer it extended to Casey's earlier this month.

Then it will come down to Casey's and 7-Eleven negotiating a deal, while Couche-Tard bides its time. Analysts say the price will probably have to go higher than what's currently on the table for Casey's and its shareholders to be satisfied.

"If 7-Eleven doesn't do anything now, I think you are going to see some pretty mad shareholders," said a source with knowledge of the takeover process that has surrounded Casey's.

"As time passes, you're going to see pressure build on Casey's to indeed deliver something."

If Ankeny, Iowa-based Casey's and 7-Eleven succeed, expect the agreed price to be "well north of $40 a share," said Ben Brownlow, an analyst with Morgan Keegan & Co.

Analysts say 7-Eleven, which operates more than 31,400 stores around the world, is financially well-positioned to buy Casey's and its network of more than 1,500 stores in the U.S. Midwest.

Even so, some were surprised when 7-Eleven, a mostly franchised business, emerged as a contender for Casey's, mainly a company-owned operation.

"Synergies appear limited in our view," BMO Capital Markets analyst Karen Short said in a research note.

Casey's shares slipped on Thursday to $42.73 a share, just off its all-time high of $44.68, but still high enough to suggest shareholders think the bid will grow richer. The stock has jumped about 40 percent since Couche-Tard's initial offer in April.

Bankers say the shareholder vote on Thursday reduced the chances of a Couche-Tard deal but did not destroy them entirely.

The most likely scenario is that neither bid goes through, said Brownlow, noting that the 4 percent difference between the two offers is unlikely to sway the 90 percent of shareholders who backed Casey's board.


"If they want to be competitive, if 7-Eleven is serious with the $40 offer -- and it's interesting we haven't heard anything more from them -- Couche-Tard's going to have to go above $40," said Derek Dley, an analyst at Canaccord Genuity.

Couche-Tard indicated earlier it might raise its offer if given the same access to Casey's books as 7-Eleven gets.

BMO analyst Short said Couche-Tard has the wherewithal to swing a $50-a-share offer, but it remains to be seen if it's willing to go that far.

"In the past, Couche-Tard's been a very disciplined acquirer, very shrewd in their acquisitions," said Dley.

"They've made it clear this is an asset that they do want, but I don't expect them to overpay or get caught up in an incremental bidding war with another company."

Couche-Tard wants to add Casey's outlets to its 5,800 North American stores and extend a U.S. expansion that saw it buy Circle K for some $804 million in 2003.

If the Canadians do not extend their offer, set to expire on September 30, it would likely mean they plan to walk away.

"If nothing happens I think they can still succeed in an offer, though the probabilities of that are probably low quite honestly," said the source with knowledge of dealings between the companies.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.