Iowa Helping Casey’s Fight

What a difference location can make. Casey’s, one of 12 public companies incorporated in Iowa, should be thankful right now it’s not incorporated in, say, Delaware where it might not have an much latitude to defend itself form Couche-Tard’s hostile bid.

In the New York Times, Steven Davidoff, writing as The Deal Professor, who weighs in on the legal aspects of mergers, private equity and corporate governance, noted that Iowa has a constituency statute that allows the Casey’s board to consider the following community interest factors when confronted with a takeover offer:
a. The effects of the action on the corporation’s employees, suppliers, creditors, and customers.
b. The effects of the action on the communities in which the corporation operates.
c. The long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.

Constituency statutes, such as the one in Iowa, were added in many states following the 1980s Supreme Court decision in CTS v. Dynamics Corp., which validated second-generation antitakeover statutes, Davidoff noted. The statutes generally allow a board of directors to consider interests other than shareholders when deciding how to respond to a hostile takeover offer.

According to Davidoff, the Iowa statute also provides that: “If on the basis of the community interest factors described [above], the board of directors determines that a proposal or offer to acquire or merge the corporation is not in the best interests of the corporation, it may reject the proposal or offer. If the board of directors determines to reject any such proposal or offer, the board of directors has no obligation to facilitate, to remove any barriers to, or to refrain from impeding, the proposal or offer.”

As Casey’s rejected Couche-Tard’s hostile bid, it used this position, stating that if the Couche-Tard bid was accepted it would have an adverse impact on Casey’s other constituencies, including employees, suppliers, creditors, customers and the communities in which Casey’s operates.

The statute gives Casey’s board more room to defend itself and avoid the normal judicial inquiry that would apply if it were incorporated in a state without such a constituency statute.  In Delaware, for example, Davidoff pointed out that the board’s actions would be examined under the Unocal doctrine, which would make sure the board was not preclusive or coercive and was reasonable in relation to the threat posed.

The Iowa statute, on the other hand, “appears to remove the board from the risk of review under such a higher standard, although the issue has yet to be considered by an Iowa court,” Davidoff noted.

Iowa also allows Casey’s to delay its decision. “Unlike Delaware, which requires the annual meeting to occur within 13 months of the last annual meeting, Iowa requires that this meeting occur the earlier of six months after the end of Casey’s fiscal year or 15 months after its last annual meeting. Casey’s fiscal year ended April 30, so Casey’s can move back its annual meeting (currently scheduled for the third Friday in September) to as far as the end of October without risk of judicial challenge. And if it is willing to litigate, Casey’s can probably buy a month or two more,” Davidoff noted.

Iowa also has a state registration requirement for tender offers (i) that seek to acquire greater than 10% of a company (ii) where at least 20% of such equity securities are held beneficially by residents of Iowa and (iii) where the target company has substantial assets in Iowa.  If the disclosure in the registration statement is not sufficient, the administrator can suspend the tender offer and call a hearing on the matter, which could potentially delay Couche-Tard.

“In defense, Couche-Tard will argue that this statute is pre-empted by the federal takeover laws, although a similar Minnesota law was upheld by the Eighth Circuit in Cardiff Acquisitions, Inc. v. Hatch back in the 1980s,” Davidoff said.

Couche-Tard Sells Stock

On April 9, Couche-Tard sold most of its investment in Casey’s, gaining at least a $10 million profit, a move the Wall Street Journal reported demonstrated a lack of commitment by Couche-Tard.

“The amounts here are so small that no doubt Couche-Tard is simply pocketing money to finance its bid. The more cynical argument is that it announced the bid to make this money – which may have truth – but it seems a bit much for such a small profit,” Davidoff noted.

Still, only time will tell, how the bid will play out. “Arguments about other constituencies are likely to fade away if Couche-Tard is willing to pay. But in the near future, expect Casey’s to delay the holding of its annual meeting; it will likely take more aggressive defense steps in the fall only if it comes to that,” Davidoff noted.  

Source: The New York Times




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