Will Casey's Be the Next Big C-store M&A Headline?

ANKENY, Iowa — 2018 did not start out on the greatest terms for Casey's General Stores Inc. On Jan. 3, its shareholders JCP Investment Management LLC, BLR Partners LP and Joshua E. Schechter issued an open letter to fellow Casey's shareholders pushing for a strategic review of the company. Together, the three shareholders own approximately $45 million of Casey's common stock.

In the letter, the concerned shareholders cited decreasing same-store sales and bloated operational expenses, which have led the company to miss earnings targets for seven straight quarters. They said the company's shares are "significantly undervalued as they do not reflect the true earnings power and full real estate value of the company's irreplaceable fleet of 2,000-plus stores."

While this does not necessarily mean Casey’s will find itself next up on the auction block, that is a very real possibility. Remember how the end of The Pantry Inc. and CST Brands Inc. began?

The same fate is possible for Casey's, but not likely, believes Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC.

"I don't think there's widespread shareholder unrest, other than a few investors that have bought some stock," Ruben told Convenience Store News, also pointing out how Casey’s fought against being sold to Circle K parent Alimentation Couche-Tard Inc. in 2010.

"It would surprise me if Casey's got sold," Ruben continued. "At the moment, I wouldn't think they're a big sale target." However, he said industry watchers should keep their eyes on the company's stock price and performance in the next 12 to 24 months and see if it continues to slide.

"Then, I think there might be a conversation there. In the short term, I don't think so. I think they're very determined to stay public and independent," Ruben said.

Rather than becoming an acquisition target, Casey's should be the one making acquisition moves, added Terry Monroe, a professional mergers and acquisitions expert in the convenience store and petroleum properties industry. He’s not putting much stock in the reports of shareholder unrest, noting Casey's is a well-run company with a good business model.

"They should be acquiring more stores. Casey's has always been known as builders and they do a great job at what they do. But when you are a publicly traded company, you have to grow and sometimes faster than you may want to in order to please your investors," said Monroe, who acknowledged that a hiccup in the stock market could result in a sale.

According to recent media reports, Casey's may have acquisitions on its mind. The retailer reportedly was one of the bidders for The Kroger Co.'s convenience store portfolio. Kroger ultimately reached a $2.15-billion deal with United Kingdom-based EG Group.

"If the rumors that Casey's was a bidder on the Kroger assets are true, then I believe that we will see Casey's look to purchase other chains in the near future," said John C. Flippen Jr., a managing director of Petroleum Capital & Real Estate LLC.

Still, with multiples and shareholder expectations so high and store quality so good, PetroActive Real Estate Services LLC President Mark Radosevich believes Casey’s future is uncertain.  

"Yes, they logically could be next," he told CSNews.

In response to its shareholder critics, Casey's pointed out that it has a strong track record of delivering value for shareholders. Its five-year total shareholder returns of 121 percent exceeded the total shareholder returns of the S&P 500 index (108 percent) and S&P Retail index (46 percent) over the same period. That being said, the board assured it was reviewing the content of the letter thoroughly.

"Casey's has a strong history of executive leaders," noted Van Tarver, president of Van Tarver Group, chairman of GreenPrint Corp. and the former CEO of Kroger’s convenience store division. "[CEO and President Terry Handley] and his team will figure this out."