Analyst: Couche-Tard's Chances for Casey's “Medium to Low”

MONTREAL -- Alimentation Couche-Tard's hostile takeover bid for Casey's General Stores has a "medium to low" chance of succeeding at the current offer price, The Canadian Press reported Wednesday, citing one industry analyst.

Vishal Shreedhar of UBS said Casey's investors appear to want a higher bid, while Couche-Tard continues to claim its offer is "full and fair" for the Midwest convenience store chain.

Couche-Tard extended its offer deadline to Aug. 6, after only 19.2 percent of Casey's shareholders tendered their shares. The Quebec-based c-store operator said it was pleased with the take-up and signaled again Tuesday that it's unlikely to sweeten its bid.

Earnings expectations for Casey's have increased since Couche-Tard disclosed its offer in April, Shreedhar noted. He said Couche-Tard investors have already added into the share price a 40-percent probability that the US $1.9-billion deal will go through.

While many factors could have driven up Couche-Tard's stock, it’s increased 5 percent since the April 9 offer, while the S&P/TSX composite fell 4 percent.

Martin Landry of Desjardins Securities said he wouldn't be surprised if Couche-Tard raises its offer to gain additional support for the acquisition.

"Even in a scenario where Couche-Tard raises its offer to US $39, we believe the transaction could be accretive to EPS (earnings per share) by U.S. $0.27, representing potential upside of C $2.50 to our target price," Landry wrote in a report. "Overall, with or without this acquisition, we continue to hold the view that Couche-Tard’s shares represent an attractive investment at current levels."

However, Shreedhar downgraded Couche-Tard's stock to neutral because of the significant share appreciation and his expectation for moderate earnings per share growth. He projects 4 percent growth in earnings per share over the next 12 months.

"Ironically, while Couche-Tard is in the midst of a potential accretive deal for Casey's, its options of boosting near-term EPS are limited -- share buybacks and other potential acquisitions are expected to be modest,” Shreedhar said.