Since April, North American convenience store operator Couche-Tard has been trying to buy regional player Casey's General Stores (CASY), with a $1.9 billion price tag.
Casey's, however, doesn't want to sell out -- at least not at that valuation. So Couche-Tard has gone hostile with a tender offer to shareholders, and has proposed a slate of directors for Casey's which will increase the pressure even further.
As should be no surprise, Casey's board rejected the offer Tuesday, but this is unlikely to be enough to fend off Couche-Tard, which operates the Mac's and Circle K brands.
Why Buy Casey's?
Casey's operates 1,507 stores in nine Midwestern states, with much of the concentration in Iowa, Missouri and Illinois. Each store offers gasoline -- on a self-service basis -- as well as freshly prepared foods, beverages, and even auto products.
The company generally pursues markets in underserved areas: About 61% of Casey's General Stores are in towns with populations under 5,000.
In the latest quarter, Casey's posted earnings of $0.34 per share, up from $0.28 per share in the same period a year ago. However, there was a 2.9% decrease in same-store gasoline gallons sold.
Prospects of the Takeover
Understandably, the weak U.S. economy has taken a toll on Casey's. As a result, the company has been focusing more on lower-cost items. But Casey's also has a cash hoard of $153 million and is interested in buying up weaker competitors. It's also pursuing plans to expand into areas like Arkansas.
Of course, Couche-Tard thinks that a merger makes more sense, especially given the importance of economies of scale. A combination would result in the largest independent-store operator in North America with 7,400 locations.
For now, Casey's has put up takeover defenses, including a poison pill. But often, such things are mechanisms to get a higher price. After all, Couche-Tard could ultimately defeat a poison pill by winning its proxy fight.
In the end, it looks like Casey's will eventually agree to a deal. But, the upshot will probably be a bump-up in the buyout price.
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