Casey’s Fires Back

With a month till the annual Casey’s shareholders’ meeting on Sept. 23, a war of words is underway, with Casey’s and Couch-Tard vying for shareholder votes and fighting to prove they have the most to offer shareholders.

In response to Couche-Tard’s most recent letter of appeal to shareholders, asking them elect its slate of eight nominated directors to the board and thus show support for the hostile takeover, Casey’s board of directors fired back. In a letter sent yesterday it set out to prove its superior value and urged shareholders to “vote for value” and discard Couch-Tard’s blue proxy card.

“Casey’s Board-which includes seven independent members out of eight total directors -has led Casey’s to become a best-in-class operator that consistently outperforms its peers and returns significant value to shareholders. Under the Board’s leadership, Casey’s is executing well on its strategic growth initiatives and creating and delivering far greater value than Alimentation Couche-Tard Inc.’s $36.75 per share offer. Couche-Tard’s proposal to replace our highly qualified, experienced directors with its hand-picked nominees has one purpose-a quick sale of Casey’s to Couche-Tard at a low price,” the letter said.

Among its argument Casey’s board asserts that the company’s stock price has consistently outperformed its peers and the market under its leadership. “Over the past three years prior to the announcement of Couche-Tard’s offer on April 9, 2010, our stock price has increased 24%, compared to our peers, which on average are down 46.3%, and the S&P 500, which is down 17.9%, over that same period,” the letter stated.

The board insists it has consistently driven increased shareholder returns, showing that if a shareholder had purchased Casey’s stock in fiscal 2001, he would have received a cumulative total return on his investment of 247% in 2010. An average return of 13% per year, reflects the Board’s commitment to increasing the dividend. “Over the past five years, our Board increased the dividend at a compounded annual growth rate of approximately 17.3%, and it increased our dividend again at the start of fiscal 2011. The Company’s dividend payout ratio for the fiscal year ended April 30, 2010 was 15%, the highest ratio among its convenience store peers,” the letter said.

As further argument, Casey’s board noted analysts recognize that through the execution of its ongoing strategic growth initiatives and recapitalization plan, Casey’s is worth more -and is already delivering more value-than Couche-Tard’s lowball offer. The eight analysts who currently cover the company have price targets for Casey’s ranging from $39 per share to $50 per share. Only 12% of Casey’s shares had tendered into Couche-Tard’s offer as of Aug. 2, Couche-Tard has stated very clearly that it does not value Casey’s at more than $38 per share.

“Long-term investors should be pleased with greater ownership in what we view as an attractively valued company, which will see upward EPS revisions and ROE following the recap. Over the next 12 months shares could move above $44 following the recapitalization as shareholder returns nearly double and management executes its growth plans funded with impressive cash flow,” Morgan Keegan was quoted as saying on  July 28, 2010.

“Your Board is already delivering more value than Couche-Tard’s small 16% premium,” Casey’s said. Since Couche-Tard’s offer on April 9, 2010 and the announcement of Casey’s fiscal 2010 financial results (and prior to the announcement of our recapitalization), the consensus analyst EPS estimates increased for 2011 from $2.26 to $2.48 (9.7%) and for 2012 from $2.55 to $2.78 (9.0%).

Adjusting these consensus analyst estimates of 2011 and 2012 EPS for the reduction in outstanding shares, additional interest expense and retirement of debt in connection with the recapitalization results in an increased 2011 EPS estimate of $2.70 to $2.72 per diluted share and a 2012 EPS estimate of $3.26 to $3.31 per diluted share. Assuming the recapitalization occurred at the beginning of the 2011 fiscal year, the 2011 EPS estimate would be increased to $2.86 to $2.91 per diluted share.

These increases in EPS estimates since April 8 represent 26.5% to 28.7% for 2011 (assuming the recapitalization occurred at the beginning of the year) and 27.7% to 29.9% for 2012, which exceeds the 16% control premium offered by Couche-Tard.

Casey’s board also listed its strong history of transparency and good governance. For the last two years Casey’s was recognized by as one of the 100 most “trustworthy companies” in the United States in an assessment of “true quality of corporate accounting and management practices.”

“Make no mistake, Couche-Tard is attempting to replace your Board with its hand-picked slate of directors to achieve one purpose: a quick sale of Casey’s to Couche-Tard at a low price. To that end, Couche-Tard continues to make misleading statements about Casey’s Board in an attempt to distract you from the inadequacy of its offer,” the board noted.

“Given Couche-Tard’s lowball offer, its statements and actions that clearly demonstrate it is not a buyer of Casey’s above $38 per share, and its questionable behavior-including its allegedly manipulative sale of Casey’s shares-our board concluded that there is no basis for discussions with Couche-Tard regarding its $36.75 per share offer.”

It refuted Couche-Tard’s suggestion that its recapitalization plan was financial engineering aimed at artificially inflating Casey’s stock price, noting the recapitalization implements the board of directors’ decision to create a more efficient and lower cost capital structure, one that will boost returns to equity holders for the remainder of fiscal years 2011, 2012 and for years to come.

It also denounced Couche-Tard for mischaracterizing the terms of Casey’s financing for the recapitalization, saying its objective in seeking financing for the recapitalization was to obtain the lowest borrowing cost possible. The terms of the private placement were the result of negotiations toward that goal, and its is pleased to have achieved that goal with the 5.22% rate-the lowest in the company’s history, and secured favorable covenants to enable Casey’s to continue to execute on its strategic plan. The fact is noteholders requested a change in control “make whole” premium in the terms of the financing as a direct result of Couche-Tard’s hostile offer.

“We don’t believe we could have secured this very attractive financing package without it. We believe that the terms of other financing options would have been less favorable for Casey’s shareholders, and our commitment is to create value for our shareholders, not Couche-Tard’s,” the board said.







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