Hostile bid schizophrenia rightly raises eyebrows

June 14, 2010

It’s hard to surprise the seasoned M&A set. But Alimentation Couche-Tard’s sale of Casey’s General Stores stock, even as it launched a $1.9 billion hostile offer for the rival convenience store chain, baffled more than a few on Wall Street. Whether Couche-Tard’s bid and Casey’s subsequent lawsuit succeed or fail, the tactic could leave its mark on the dealmaking rulebook.

Couche-Tard’s  interest in Casey’s  began quietly last September when the Canadian company, which operates nearly 6,000 stores, started buying shares in U.S.-based Casey’s. It began private entreaties to Casey’s management in November. And by the beginning of April, Couche-Tard had accumulated nearly 2 million Casey’s shares, or a 3.9 percent stake — short of the 5 percent holding it would have been obliged to disclose publicly.

That’s when Couche-Tard’s maneuvering became perhaps too clever. It made public its interest in Casey’s and offered to buy shares at $36 apiece. Casey’s shares surged past the 14 percent premium on offer to more than $38 — and Couche-Tard unloaded nearly its entire stake. Assuming an average purchase price of $31, Couche-Tard pocketed more than $14 million on the trade. The twin moves don’t have to be completely contradictory — Couche-Tard may consider Casey’s a buy at $36 and a sell at $38.43 — but the apparent schizophrenia still rightly raised eyebrows.

Casey’s has filed a lawsuit, alleging a “classic pump-and-dump” scheme — a claim Couche-Tard says is without merit. Whatever the outcome, the Canadian company’s trading must surely have influenced Casey’s share price. Peddling what amounted to some 17 percent of Casey’s daily trading volume as the market digested the hostile offer could well have restrained the heights the shares might have otherwise reached as investors anticipated a deal at a higher price.

Couche-Tard is still acting like it wants to own Casey’s. It nominated a slate of nine independent directors last week. But the market is understandably skeptical. Casey’s shares are trading at a small discount to the bid price. Couche-Tard may or may not have broken the law, but the company at least appears to have exploited a loophole. It may for now have a better chance of provoking regulators to reform takeover rules than of buying Casey’s.

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