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ANKENY, Iowa -- The board of directors of Casey's General Stores Inc. yesterday issued a recommendation to its shareholders to reject last week's $36-per-share tender offer made directly to Casey's shareholders from Canadian c-store retailer Alimentation Couche-Tard.
In its statement, Casey's said the offer "substantially undervalues Casey's and is not in the best interests of Casey's, its shareholders and other constituencies." Casey's also filed a report with the Securities and Exchange Commission ("SEC") detailing the reasons for its rejection of Couche-Tard's offer.
"Our board's position is clear -- shareholders should reject Couche-Tard's offer and not tender their shares. We believe this is a self-serving and transparent attempt by Couche-Tard to take significant value that rightly belongs to Casey's shareholders," Robert J. Myers, president and CEO of Casey's, said in a statement. "We believe our shareholders will reap far greater value from our industry leading performance, significant growth opportunities, successful execution of our strategic initiatives, strong balance sheet and real estate position, and the benefits of our highly differentiated business model and well-regarded self-distribution system."
In its evaluation of the tender offer, Casey's board consulted with its legal and financial advisors, along with the convenience store chain's senior management. The group concluded:
-- Casey's can create far greater value for shareholders than reflected in the offer price, as the company's inside same-store sales growth has been positive for 25 consecutive quarters, its inside-sales margins lead the industry and Casey's is undertaking significant growth opportunities. It also benefits from a highly differentiated business model, focused on developing a loyal customer base among predominantly smaller communities.
-- Couche-Tard is attempting to transfer to its shareholders the significant value in Casey's balance sheet and real estate position that rightly belongs to Casey's shareholders, including Casey's leverage capacity and flexibility from more than $150 million in cash and only $182 million in debt. Casey's also owns the land and buildings for 98 percent of its approximately 1,500 stores, its head office and distribution center.
-- The Couche-Tard offer represents a low control premium and low EBITDA multiple, while being selective in its comparisons. The 14 percent premium of the offer is significantly lower than the 32 percent median premium for all cash acquisitions of U.S. companies in transactions valued between $1 billion and $3 billion in 2009 and 2010 to date. The offer is a multiple of 7.0x LTM EBITDA, which is low compared to historical industry trading multiples of 7.7x.
-- The offer does not fully compensate Casey's shareholders for the potential synergy value of a combination. The merger would provide expanded opportunities and resources such as purchasing synergies and administrative cost savings, which are not represented in the offer.
-- Couche-Tard's offer is highly conditioned, including: whether Couche-Tard can secure committed financing or has available financings sufficient to consummate the offer; market-related events; Casey's not taking certain actions that are within the normal course of business operations;
-- Couche-Tard is using questionable tactics in an attempt to facilitate its offer, including selling its nearly 2 million shares of Casey's (totaling 3.9 percent of the company) the day its offer was made public, at a price of $38.43 per share, which represented 12.7 percent of the trading volume in Casey's stock on that day. Couche-Tard currently owns 362 Casey's shares.
-- The timing of the offer is highly opportunistic and takes advantage of extraordinary equity market volatility. The initial proposal was made during a temporary valuation dislocation for Casey's, due to the impact of the recession and severe weather within Casey's operating territory. Couche-Tard has made clear its intentions to acquire U.S. companies on the cheap before the economic recovery restores stock prices to their full value.
-- A merger would have an adverse impact on Casey's other constituencies, including employees, suppliers, creditors, customers and the communities in which Casey's operates, due to differences in operation and management.
Meanwhile, Myers responded to Couche-Tard's formal notice of its intention to nominate nine individuals for election to Casey's board of directors at its 2010 annual shareholders meeting, stating it is "clearly an attempt by Couche-Tard to gain control of Casey's and force through its inadequate proposal to acquire the company."
And in response to Casey's recomendation, a Couche-Tard spokesperson stated: "We are disappointed that the Casey’s board of directors has recommended that its shareholders reject our $36 per share cash tender offer without any discussion or negotiation with us. We believe our offer price represents full and fair value for Casey's. Our tender offer was commenced to allow the Casey's shareholders to decide if they wish to accept an immediate premium in cash, and thereby avoid any uncertainty with respect to the future stock performance of Casey's, a decision that the Casey's board seeks to deny its shareholders. We are committed to making this combination a reality as evidenced by the commencement of our tender offer and nomination of a slate of directors for election to the Casey's board of directors."
The full text of Casey's 14D-9 filing is available in the Investor Relations section of Casey's website at www.caseys.com.
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