Parsing the Couche-Tard, Casey's Buyout Saga

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Includes: ANCTF, CASY
by: Market Blog

By David Berman

Judging from the rise in Alimentation Couche-Tard Inc.’s (ANCTF.PK) share price on Monday, investors like the idea of the Canadian-based convenience store chain acquiring Casey’s General Stores Inc. (NASDAQ:CASY), which operates mostly rural outlets in the Midwest United States. Analysts also seem warm to the $1.9 billion (U.S.) offer, which was rejected by Casey’s board of directors on Friday.

James Durran, an analyst at National Bank Financial, has summarized why Casey’s is a good fit. For one, the U.S. chain’s geographic region offers almost no overlap with Couche-Tard’s current holdings. For another, Casey’s has relatively little debt on its balance sheet, while Couche-Tard has access to pretty cheap financing for an acquisition – adding up to an acquisition that should drive Couche-Tard’s earnings higher.

There is the matter of price, though. Couche-Tard has offered $36 a share. Casey’s shares have since soared above $39, suggesting that some shareholders expect a higher offer from either Couche-Tard or a rival bidder.

Mr. Durran noted that Couche-Tard’s offer, while not giving Cashey’s shareholders a huge premium, nonetheless values the shares at the upper end of average transactions within the convenience store sector. At the top end of the valuation scale, the company could be worth as much as $41 a share, while U.S. analysts believe Casey’s is worth between $38 and $42 a share.

But Mr. Durran noted that Casey’s shareholders should be careful about expecting a higher offer: “Couche-Tard’s financial discipline and other opportunities suggest they could walk if the price of success gets too high,” he said.

As for rival bidders, Mr. Durran sees limited alternatives: 7-Eleven and private equity firm Sun Capital Partners are only two reasonable alternatives.