TORONTO A new approach has set the stage for a bidding war for Casey's General Stores (CASY.O), and a September 23 shareholder vote may help determine the outcome.
The new bid, from a suitor Casey's did not name, seemed to come out of nowhere this week. Casey's said the non-binding offer was for $40 per share, or about $2.03 billion.
Sources identified the rival as 7-Eleven, the world's largest convenience-store chain.
The bid topped a $38.50-a-share offer from Canada's largest convenience store operator, Montreal-based Alimentation Couche-Tard Inc (ATDb.TO), which wants to add Casey's 1,500 stores in the U.S. Midwest to its 5,800 North American stores and which has been trying to buy Casey's since April.
"If they're really looking out for their shareholders and interested in actually selling the company, it has to go to an auction. They have to talk to all of the interested parties," Canaccord Genuity analyst Derek Dley, said of Casey's.
Bankers close to the situation see the next crunch date as September 23, when shareholders vote on a roster of candidates that Couche-Tard has nominated to Casey's board who may be more open to a takeover than the current management is.
"They (Casey's) are going to come out with something in the week or in the days prior to the 23rd to make sure they have something solid and their shareholders don't vote for Couche-Tard's slate of board of directors," said a banker with knowledge of dealings between the two companies.
"What they might try to do is still convey the potential of coming to the table...giving Couche-Tard access to its data room and try to have Couche-Tard come up with something that starts with a four," meaning a price in the $40-plus range.
Some analysts said the potential competing bid -- at this point it's still a proposal -- might actually help Couche-Tard by encouraging investors to support its proposed lineup of independent directors.
"Since Casey's only appears willing to have discussions with this mystery bidder, an independent board would be more likely to open the books to all serious bidders in an effort to generate the highest return via a bidding war," TD Newcrest analyst Michael Van Aelst said in a research report.
He described Couche-Tard as a disciplined player that would not allow itself to overpay.
Couche-Tard initially offered $36 a share, raising it first to $36.75 and then to the current price. Casey's says all the bids are inadequate.
"I don't think that $36 was ever the right price," said Karen Short, a director at BMO Capital Markets in New York. "And to the extent that Couche-Tard wanted to try and open the lines of communication, that $36.75 offer slammed the door in their face."
Short on Wednesday raised her target price for Casey's to $46 from $39, well above both current bids. "I think you have a situation where Couche-Tard is going to have to come up with a much higher offer to open the lines of communication."
While 7-Eleven seems able to afford the price-tag, the bid caught some analysts by surprise.
The Japanese-owned company -- which was generally not on analysts' long list of potential Casey's suitors -- has been moving more toward franchise locations and away from company-owned stores, which is how Casey's operates.
"It was a surprise in the fact that it's a shift in structure for 7-Eleven," said Dley.
Bankers say Couche-Tard could look elsewhere if its bid for Casey's fails. Couche-Tard expanded into the United States in 2003 when it bought Circle K for some $804 million.
Early Thursday afternoon, Casey's shares were up 1.3 percent at $43.68 per share.
Couche-Tard shares were 2.2 percent lower at C$22.69 on the Toronto Stock Exchange.
(Additional reporting by Megan Davies; editing by Janet Guttsman)