Couche-Tard, we argued back in April, would have a hard time convincing shareholders at Casey’s General Stores that its US$1.9bn bid for the US c-store operator was an attractive offer.
Yesterday’s (15 June) annual results from Casey’s have only underlined the mammoth task ahead of the Canadian retailer if it is to succeed with its takeover without significantly rethinking what it is prepared to offer.
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Couche-Tard, since it made its bid, has stuck to its guns, arguing that the $36-a-share offer gives Casey’s investors a 14% premium on the closing price the day before the hostile bid was made.
As recently as Monday (14 June), Couche-Tard said that it believed its offer “represents full and fair value for Casey’s.”
And, its rhetoric continues to be upbeat and combative. “Our tender offer was commenced to allow the Casey’s shareholders to decide if they wish to accept an immediate premium in cash, and thereby avoid any uncertainty with respect to the future stock performance of Casey’s, a decision that the Casey’s board seeks to deny its shareholders,” Couche-Tard argued.
“We are committed to making this combination a reality as evidenced by the commencement of our tender offer and nomination of a slate of directors for election to the Casey’s board of directors.”
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By GlobalDataBut while the rhetoric has appeared focused, Couche-Tard’s actions – from its failure to consider a stronger offer to its strange decision to sell a significant stake in Casey’s after it tabled the bid – have failed to convince most onlookers of the company’s credentials as a serious contender.
“The offer states the $36 is a 24% premium to the last year’s average closing price. In our view [this is] completely irrelevant given the weakness all stocks experienced in the early 2009 time frame. And … the offer is only a modest 14% premium to Thursday’s close,” one retail analyst we quoted said at the time.
Meanwhile, Scotia Capital analyst Catharine Sterritt said in another report that Couche-Tard’s decision to sell its toe-hold position of around 2m Casey’s shares after its bid pushed the share price up “suggests Couche-Tard is very price sensitive”.
Yesterday’s figures have tipped the battle in Casey’s favour even further, adding firepower to the US firm’s defence.
Casey’s has argued since April that its average same-store sales growth has outpaced the average seen in the convenience sector. And, that it is well set to continue to expand its business while growing its share price.
“We believe Casey’s will deliver far more value to shareholders than Couche-Tard’s $36 per share offer,” the company said yesterday on a conference call.
Casey’s fourth-quarter and full-year earnings, boosted by retail sales and and higher fuel prices, were impressive enough. The company reported full-year basic earnings per share of US$2.30 for the year to 30 April, an increase of over 36% on the year. However, the results also include around $6.9m in legal and advisory fees related to the hostile takeover bid from Canadian rival Couche-Tard.
Without those fees, the figures look even stronger.
President and CEO Robert Myers had good reason to sound triumphant when he noted that “fiscal 2010 was a monumental year for Casey’s General Stores”, pointing out that the group beat its previous best year by $0.61 per share.
Couche-Tard’s position has been further weakened since it made the bid by the sovereign debt crisis in Europe, leading to significant problems in the credit markets and questions about how Couche-Tard will raise the money for its bid, let alone any sweetener the market views as necessary.
It is a significant doubt about the bid that the Casey’s board is sure to play up, alongside its own robust performance, in the coming weeks.
