Ankeny, Iowa-based Casey’s General Stores Inc.’s board of directors has unanimously approved a $500 million recapitalization plan for the company and has reaffirmed its strategy to continue to execute upon its growth plan.
The recapitalization plan is expected to be executed through a modified “Dutch auction” self tender offer for up to $500 million of the company’s common stock at a price of $38 to $40 per share, and will be funded by a combination of debt financing and available cash. Casey’s believes that the recapitalization plan: Will generate significant value for Casey’s shareholders; will be highly accretive to its diluted earnings per share at all prices in the offer range; will allow shareholders to continue participating in the company’s substantial upside; and is financially prudent given the Casey’s strong balance sheet and careful use of capital.
“We are pleased to announce a $500 million recapitalization plan that will generate significant value and enhanced returns for Casey’s shareholders while allowing us to continue executing on our strategic growth initiatives,” said Robert Myers, Casey’s president and CEO. “The Casey’s board believes our stock is meaningfully undervalued at recent trading levels and that the company is underlevered given Casey’s strong balance sheet and consistent cash flow. The repurchase of approximately 25% of Casey’s outstanding shares in this highly accretive transaction is very compelling. Moreover, we are excited about our prospects and our ability to significantly grow our footprint, and expand our new store design and offerings across our store base to drive additional shareholder value.”
Casey’s Rejects Second Bid
Casey’s also announced that its board unanimously recommends against Alimentation Couche-Tard Inc.’s slightly revised tender offer to acquire Casey’s for $36.75 per common share, saying it substantially undervalues Casey’s and is not in the best interests of Casey’s, its shareholders and other constituencies.
Casey’s filed today an amended Schedule 14D-9 with the Securities and Exchange Commission (“SEC”) detailing the reasons for its recommendation against Couche-Tard’s offer.
Myers added, “After careful evaluation, the Casey’s Board unanimously recommends that our shareholders do not tender their shares into Couche-Tard’s inadequate $36.75 per share offer. Our plan to repurchase a substantial portion of Casey’s shares enables us to acquire approximately 25% of the best operator in the convenience store sector-Casey’s-at a very attractive price. On the contrary, Couche-Tard does not believe in the true value of Casey’s, as evidenced by its CEO’s comment in its 2010 Annual Report: ‘When speculators moved [Casey's] stock above $38 on the day of announcement, we simply knew at that time that we would not be buyers at that level…'”
Myers concluded, “The bottom line is that Casey’s shareholders will receive far more value from our accretive recapitalization plan and the substantial future upside of our growing company than through Couche-Tard’s inadequate, self-serving offer.”
Given Casey’s strong business and careful use of capital, Casey’s believes it will be able to obtain financing for the recapitalization at attractive rates. Casey’s expects that the recapitalization plan will not interfere with its ability to pursue its strategic growth plan.
Casey’s will also still have the financial flexibility to pursue other value-creating opportunities available to the company. It has no plans to change its current quarterly dividend, which was recently increased to $0.10 per share and is payable on Aug. 16, 2010 to shareholders of record on Aug. 2, 2010. Casey’s will have post-recapitalization debt levels that compare favorably to peer companies in the sector and minimal rental expense.
Casey’s asserts that Couche-Tard’s new offer does not take into account Casey’s strong recent performance and continuing momentum including the following:
-Casey’s fiscal 2010 performance and year-to-date results underscore the company’s strong future prospects and ability to create far greater value for shareholders than reflected in the Couche-Tard Offer price. Casey’s reported a record fiscal 2010 and expects to build on its positive momentum in 2011. The Company increased fiscal 2010 EPS 36% over the previous fiscal year and maintained its industry-leading margins.
-The research analysts that cover Casey’s included in the Reuters consensus estimates have increased their EPS estimates for Casey’s by an average of 11% since April 8, 2010, the day before Couche-Tard first made its proposal public.
-Casey’s impressive performance has continued into fiscal 2011, as evidenced by its strong June same-store sales results amidst a still challenging economic environment and one of the wettest Junes on record in its marketing region. Casey’s reported both strong gas volume increases and above-goal gas margins for the June period, as well as positive inside same-store sales growth and a strong customer count.
-Casey’s inside same-store sales performance has been positive for 26 consecutive quarters, averaging 5.9% for the five fiscal years ended April 30, 2010 versus the convenience store peer average of 3.5% for the comparable fiscal period. The company expects inside same-store sales growth to trend favorably over the remainder of the 2011 fiscal year.
-Casey’s stock price has consistently outperformed its peer group and the broader market. In the three year period prior to the public announcement of the Couche-Tard offer, Casey’s stock increased 24% while the convenience store peer group experienced an average decrease of 46% and the S&P 500 decreased 18%.
-Casey’s is recognized as a best-in-class retailer, supported by its industry-leading inside-sales margins, double-digit annual EPS growth over the five fiscal years ended April 30, 2010, and track record of returning value to shareholders through a dividend which has increased at a compounded annual growth rate of 17.3% over the past five fiscal years.
Casey’s noted it is continuing to seize significant growth opportunities including the expansion of its business and geographic footprint through strategic acquisitions and new store openings, improved store economics from its new store design, store replacement and remodel program and its proven ability to successfully implement price increases. The company benefits substantially from its highly differentiated business model which is focused on developing a loyal customer base among predominantly smaller communities as well as the strength and stability of its high-margin proprietary prepared food program and the efficiencies from its unique and strategically complementary self-distribution system.
The company believes that Couche-Tard is trying to buy U.S. companies on the cheap, and stated the Couche-Tard offer represents a low control premium – 16% to Casey’s closing stock price the day before Couche-Tard publicly disclosed its original proposal on April 9, 2010 and only a slight increase over Couche-Tard’s original offer, which represented a premium of 14%.
Casey’s also claims that Couche-Tard is making misleading statements and engaging in questionable behavior regarding its offer and Casey’s. For example: In an effort to imply a higher control premium than is truly represented in its revised offer, Couche-Tard has claimed that, absent its original offer, Casey’s stock would have declined along with the S&P 500 Index and the S&P Retail Index. “In fact, Casey’s stock price has consistently outperformed both indexes on a historical basis, and its U.S. sector peers have also outperformed both indexes since Couche-Tard made its original proposal public on April 9, 2010,” according to Casey’s. It added, “Couche-Tard continues to inaccurately portray the trailing EBITDA multiple implied by its offer. The acquisition multiple implied in the $36.75 per share offer remains unchanged at 7.0x LTM EBITDA, not 7.2x LTM EBITDA as claimed by Couche-Tard. Couche-Tard inaccurately stated that the EBITDA multiple of its original offer was 7.4x.”
As previously announced, Casey’s has filed a complaint against Couche-Tard alleging a market manipulation scheme perpetrated by Couche-Tard in an attempt to acquire all outstanding shares of Casey’s stock at an artificially deflated price. As described in the complaint, shortly after Couche-Tard made public its offer of $36 per share on April 9, Couche-Tard sold almost all of its Casey’s shares (approximately 3.9% of the issued shares of Casey’s) at an average price of $38.43 per share, reaping millions of dollars of profit by trading on the market’s reaction to its own announcement and artificially depressing the run up in Casey’s stock price that otherwise would have followed Couche-Tard’s announcement of its takeover bid.
Dutch Auction Details
Casey’s will commence a modified “Dutch auction” self tender offer for up to $500 million of Casey’s common stock at a price of $38 to $40 per share. The minimum price of the offer reflects a 4.1% premium over the closing price of $36.50 on July 27, 2010, the last full trading day prior to the announcement. The offer is expected to commence tomorrow, July 29, and would expire on Aug. 25 at 12:00 midnight New York City time, unless extended.
If the number of shares tendered at or below the determined per share price totals more than $500 million, Casey’s will purchase shares tendered at or below the determined price on a pro rata basis, as will be specified in the Offer to Purchase that will be distributed to shareholders.
The tender offer will proceed by way of a modified “Dutch auction,” whereby Casey’s shareholders may tender all or a portion of their common shares at a price range of $38 to $40 per share. Based on the number of shares tendered and the prices specified by the tendering shareholders, the company will determine the lowest price per share within the range at which the company can purchase up to $500 million of its common stock. All common shares purchased by Casey’s will be purchased at the same price. If the offer is fully subscribed, then $500 million of common stock will be repurchased, representing approximately 24.5% to 25.8% of the 50.97 million shares outstanding as of July 23, 2010. Specific instructions and an explanation of the terms and conditions of the offer are being mailed to Casey’s shareholders.
The board of directors said the offer will provide shareholders with the opportunity to tender their shares and receive a return of capital if they decide to do so, without potential disruption to the share price and the usual transaction costs associated with market sales. Shareholders can opt not to participate.
Casey’s directors and executive officers have advised the company that they do not intend to tender any of their shares in the offer.
MacKenzie Partners will serve as information agent for the tender offer. Shareholders with questions, or who would like to receive additional copies of the tender offer documents when they are available, may call MacKenzie Partners at (212) 929-5500 or (800) 322-2885.