TORONTO 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.