ANALYSIS, Part 2: Casey's Uncertain Intentions

How serious was 7-Eleven's bid for Midwest chain? Was Casey's ever open to selling?

Published in CSP Daily News

By
Mitch Morrison, Vice President & Group Editor

ANKENY, Iowa -- So was 7-Eleven Inc.'s bid for Casey's General Stores Inc. a mere roadblock to prevent original bidder Alimentation Couche-Tard Inc. from making an acquisition that would have given it bragging rights as the largest convenience chain in North America?

Or was 7-Eleven perhaps a glorified pawn recruited by Casey's to preserve the latter's independence?

( Click here to read part 1 of this analysis of Casey's/7-Eleven. And click here for previous CSP Daily News coverage of the Casey's, Couche-Tard and 7-Eleven triangle.)

Several analysts and c-store industry experts, speaking after 7-Eleven pulled out of the bidding this week, have doubted for months Casey's intentions to support a sale to 7-Eleven, citing the company's strong regional culture as a primary purveyor of goods in largely rural markets. A feature in the October issue of CSP magazine ( click here) describes in great detail Casey's unique standing among local vendors and residents in the nation's heartland.

In short, these critics contend that the 7-Eleven and Casey's "courtship" was spurred by a mutual goal--to block Couche-Tard. Once accomplished, it was only a matter of time, these critics believe, that 7-Eleven and Casey's would dissolve talks of a deal.

"Casey's behavior throughout the Couche-Tard and subsequent 7-Eleven bid process made it pretty clear the company wasn't for sale at any price, and [7-Eleven terminating negotiations] comes as no surprise," Jim Durran, an analyst with National Bank Financial, wrote in a research note Wednesday after Casey's said it turned down 7-Eleven's final offer of $43 per share, or roughly $2 billion.

"The rejection of the $43 [per share] offer," he added, "will probably be a tough pill for a lot of Casey's shareholders to swallow and will increase doubt about how shareholder-focused Casey's board and management are."

Another analyst, one of three interviewed by CSP Daily News, added, "There is no compelling reason for Casey's leadership team to sell. Comparatively speaking, they don't own a lot of stock. They make a good income but not a great income. They want to hold onto their jobs, they live in the community, and they like doing what they do."

That said, Casey's today is not the company it was last April when Couche-Tard went public with its takeover interests. Since then, Casey's stock--buoyed by Couche-Tard's foray--has climbed significantly and propelled Casey's board last summer to win over shareholders by undertaking a risky $500-million recapitalization plan. The initiative involved buying back the company's common stock at $38-$40 per share. In the end, it paid $38 per share.

Like a chess match, that maneuver seemed to put Couche-Tard and its subsequent $38.50 offer in a bit of a stalemate. It also shifted Casey's posture from defensive to offensive, buoying the company to embrace a more diligent merger-and-acquisition strategy.

With that, Casey's in September announced the purchase ofsix ShortStop sites from J.D. Carpenter Cos. Inc.,Urbandale, Iowa. In October, it picked up 19 On the Way sites fromSpringfield, Ill.-based Harper Oil Co. Inc.And on Wednesday, simultaneous to announcing it had ended talks with 7-Eleven, Casey's revealed it had entered into a $45.8-million deal to acquire 44 Kabredlo's stores in the Nebraska and Kansas markets. ( Click here to read more about that acquisition.)

So, for a company teetering just months ago in the eye of a ferocious storm, Casey's today stands as independent and defiant as ever, transformed from the pursued to the pursuer.

By Mitch Morrison, Vice President & Group Editor
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