7-Eleven Bids $2 Billion For Casey's

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Giant c-store chain jumps into Casey's/Couche-Tard takeover battle

7-Eleven Inc. bid $2 billion for Casey's General Stores Inc. last month, offering $40 per share to acquire Ankeny, Iowa-based Casey's, which would give the country's largest c-store operator 1,531 more stores, boosting its count of 6,500 U.S. locations.

Since April, Casey's has defended itself from unsolicited offers from Laval, Quebec- based Alimentation Couche-Tard Inc., whose most recent offer was $38.50 a share.

As CSNews Online reported first last month, Casey's confirmed Sept. 9 it entered discussions with Dallas-based 7-Eleven regarding a potential transaction. According to Casey's, the company received an unsolicited preliminary proposal Sept. 2, from 7-Eleven regarding a consensual transaction at $40 per share in cash. As disclosed in Casey's Schedule 14D-9 filed with the Securities and Exchange Commission Sept. 7, the proposal was the first contact made by 7-Eleven to Casey's regarding a potential transaction. While the Casey's board reviewed the proposal and said it firmly believes that Casey's value substantially exceeds $40 per share, it authorized discussions with 7-Eleven to "explore whether a transaction can be reached that reflects the true value of Casey's and is in the best interests of Casey's, its shareholders and other constituencies." Casey's also noted there can be no assurances that a transaction will be reached and that it is under no legal obligation to provide an update on the discussions.

7-Eleven had $13.7 billion in U.S. sales last year; Couche-Tard's U.S. sales were $12.8 billion.

More than 4,800 of 7-Eleven's 6,523 stores are franchised. Couche-Tard operates 3,455 stores in the United States, 2,910 of which are corporate-owned. Casey's is the fifth largest c-store chain in the U.S. based on company-operated stores, with more than 1,520.

Casey's has put its share-value at $45 "without a takeover premium." Goldman, Sachs & Co. is acting as financial advisor to Casey's, and Cravath, Swaine & Moore LLP and Ahlers & Cooney, PC are providing legal advice.

Analyst Ben Brownlow with Morgan Keegan & Co. told Reuters 7-Eleven's bid surprised him. "My understanding was 7-Eleven was moving toward more franchise locations and less company-operated locations," he told the news organization. "But with that said, they're certainly large enough."

Brownlow called the 7-Eleven bid a "serious" one, adding: "Whether it goes through, I guess it depends on how high both parties are willing to go, because obviously Casey's board feels $40 significantly undervalues the firm, the company. I definitely don't expect a bid to go through at $40."

Michael Van Aelst, an analyst with TD Securities Inc. said in a research note published before the Wall Street Journal named 7-Eleven as the bidder, that the arrival of a rival bidder could be positive for Couche-Tard, as it might boost Casey's shareholders' backing of its slate of directors, who in turn would be more likely to open up the bidding process in hopes of getting the best price through a bidding war, according to a report by The Globe and Mail.

Meanwhile, Couche-Tard reached an agreement with the Federal Trade Commission regarding its hostile takeover attempt of Casey's. The agreement would allow the retailer to acquire the Midwestern convenience store chain if it divests c-stores at 25 locations within a specified time following the closing of the acquisition, the retailer said.

As Casey's continued to rebuff Couche-Tard's overtures, it offered its first quarter financial results as more proof that the Canadian retailer's bid of $38.50 per share is insufficient. The Iowa-based chain reported basic earnings per share of 73 cents for the first quarter of fiscal 2011, ended July 31. Total revenue increased 14.7 percent, but net earnings fell 15.1 percent for the quarter after the impact of approximately $6.2 million in legal and advisory fees related to evaluating Couche-Tard's unsolicited offer. Without those fees, basic earnings per share would have been 81 cents for the quarter, in line with analysts' consensus estimates and only slightly below the 87 cents per share for the year-ago quarter, which was a record high for the company.

Along with the financial results, Casey's also announced it signed commitments to acquire an additional 52 stores that it anticipates purchasing by the end of the calendar year.

While 7-Eleven Inc.'s $40-per-share bid to acquire Casey's General Stores was deemed too low by its board, the Midwest convenience store chain has entered discussions for a potential transaction.