TORONTO For billionaire Mario Gabelli, the $1.9 billion takeover offer for Casey's General Stores (CASY.O) made by Alimentation Couche-Tard (ATDb.TO) just isn't sweet enough for him to sell his shares.
"We like Casey's as an investment," said Gabelli, who is ranked No. 937 on the Forbes 2010 list of the world's richest people. "We were buying the stock at $30 because we thought in a couple of years the stock would be materially higher."
The investor says he's looking for a "kiss" -- Wall Street talk for a sweetened bid -- from Couche-Tard that will make his company, GAMCO Investors Inc (GBL.N), want to tender its 0.7 percent of Casey's (about 350,000 shares as of March 31, according to Thomson Reuters data).
Couche-Tard, Canada's largest convenience store chain, may have no choice but to pucker up if it wants Casey's badly enough.
Last week, Couche-Tard offered to pay $36.75 a share for Casey's, which operates about 1,500 convenience stores across nine states in the U.S. Midwest.
Casey's rejected the bid on Wednesday, just as it had an earlier bid worth $1.84 billion, and said it would buy back $500 million worth of common stock, about 25 percent, as part of a recapitalization plan designed to thwart Couche-Tard.
The recapitalization plan, set to begin on Thursday and expire on August 25, will be through a modified "Dutch auction" self tender offer that may price its common stock between $38.00 and $40.00 a share, or a 4.1 percent premium over Tuesday's closing price of $36.50.
Casey's stock rose 3 percent on Wednesday to $37.63 a share, or about $1 more than Couche-Tard's latest offer.
"If Couche-Tard intends to continue to pursue the acquisition of Casey's, it will likely need to raise its offer price above the range offered by Casey's in its Dutch auction," said Desjardins Securities analyst Martin Landry in a research note.
"Given these new developments, the likelihood of a transaction seems more remote."
Analysts, who are skeptical that another player will step in, say, however, that the ceiling for Couche-Tard is probably near $38.43 a share. That's the price at which it sold Casey's shares shortly after it announced its first takeover offer in April.
Casey's shareholders who see the company as a growth story are likely looking for a higher number than that.
"I think if they offered $40, I think you'd get enough shareholder approval that they would have a good chance of overturning the board," Karen Short, a director at BMO Capital Markets in New York, said before the recapitalization was announced.
"Anything below that, it's unclear -- it's kind of 50-50 as to whether or not you'll get enough shareholder approval to change the board over."
Before the recapitalization move, ClearBridge Advisors, a Legg Mason equity manager with about 2 percent of Casey's stock, said it was encouraging the board to reconsider Couche-Tard's offer and "negotiate in good faith".
Casey's has expressed no interest in having a dialogue with Couche-Tard management at the $36 level.
It accuses Couche-Tard, which operates a network of more than 5,800 stores including 3,600 stores in the United States, of trying to buy American companies "on the cheap".
BMO's Short said Casey's shareholders are in it for growth, a factor not reflected in Couche-Tard's current offer.
But the Couche-Tard offer doesn't expire until August 6, and Gabelli says a lot might happen between then and now. "We always wait until the last minute," he said.
"If the deal breaks -- if the ... Canadian walks away -- we'll be delighted to buy a lot more stock lower."
(Editing by Peter Galloway)