Hostile suitor heats up war of words with Casey’s

Alimentation Couche-Tard urged Casey's General Stores Inc. shareholders to vote for its takeover-friendly slate of directors in a letter accompanying proxy voting materials this week.

The Quebec, Canada-based Couche-Tard launched a hostile takeover bid for Casey's in April with a $36-per-share all-cash offer for the Iowa-based convenience store chain, and later raised it to $36.75 per share.

Couche-Tard CEO Alain Bouchard used the proxy letter to lambast plans for a $500 million recapitilization of Casey's General Stores aimed at fending off Couche-Tard's takeover.

Bouchard said Casey's plans to spend about $500 million in borrowed money repurchasing about one-fourth of its outstanding shares is a way for Casey's to temporarily manipulate the price of its stock without increasing long-term shareholder value.

In addition, Bouchard criticized a “poison put” feature in the private placement of notes to finance the stock repurchase.

The poison put feature requires Casey's to offer pay the noteholders about $100 million in penalties if the Casey's shareholders decide to replace the board, according to Bouchard's letter.

“We believe the private placement of notes is designed to entrenach the Casey's Board and the management of Casey's at the expense of the Casey's shareholders,” he wrote.

The financing makes it almost $2 per share more expensive to acquire Casey's, the letter said, money that could have gone to Casey's shareholders but instead is designated for noteholders in the event of future acquisitions.

Bouchard said Couche-Tard's track record with employees of the companies it has acquired has been “outstanding.”

“Couche-Tard operates using a highly decentralized model, and we expect to keep most, if not all of the employees of Casey's in place,” Bouchard added.

Bouchard said his company has been “respectful to local businesses around the companies it acquired.” Because of its decentralized business model, he wrote, it has been able to continue relationships with existing suppliers and vendors.

“In the case of Casey's we already have significant overlap in vendors and do not expect any material changes in operations,” he wrote.

Casey's annual meeting is scheduled for Sept. 23. The company released a lengthy investor presentation Thursday, August 19, outlining its case for rejecting Couche-Tard's offer.

In the presentation, Casey's argued that its recapitalization will boost earnings from $2.29 in fiscal year 2010 to a range of $3.26 to $3.31 per share in fiscal year 2012.

The presentation said Casey's has a significantly better gross profit margin on non-fuel sales than Couche-Tard, and has shown a pattern of increasing earnings in most years.

Casey's differs from most convenience store chains in its focus on small-town markets, where it tries to be the exclusive or dominant convenience store. More than 60 percent of its stores are in towns under 5,000 population.

Casey's has also been more successful than most convenience store chains in its in-store prepared food sales.