June 11, 2010
by Zach Lowe
We had a feeling the battle between Alimentation Couche-Tard and its hostile target, fellow convenience store operator Casey’s General Stores, was going to get nasty, but we didn’t think it was going to get this nasty this quickly. To wit: About two hours ago, Casey’s and its lawyers at Cravath, Swaine & Moore filed a blistering lawsuit against Couche-Tard, saying the Canadian owner of the Circle K chain executed a so-called pump and dump scheme with Casey’s stock designed to make millions in profits while at the same time torpedoing Casey’s share price at the exact moment Couche-Tard made its offer for Casey’s public.
The background: On April 9, Couche-Tard, represented by Dewey & LeBoeuf, made public a $1.9 billion bid for Casey’s that amounted to an offer of $36 per Casey’s share, according to our prior reporting. Casey’s rejected the deal, saying it was a low-ball offer. Couche-Tard went hostile with a tender offer, which Casey’s this week urged its shareholders to reject.
The suit filed today (and available below) says that in the weeks–and even days–leading to that April 9 offer, Couche-Tard quietly accumulated about 2 million Casey’s shares at prices ranging between $29 and $33. Couche-Tard purchased about 52,000 Casey’s shares on April 7 and April 8 alone, the complaint states. Couche-Tard announced its offer on April 9 and promptly sold nearly all of its shares at a price of about $38.73 per share, the complaint says. Couche-Tard made about $10 million by taking advantage of the bounce in Casey’s share value linked to the announced offer, but by selling in bulk, Couche-Tard also depressed the size of the gain Casey’s stock price would otherwise have achieved on the news of the bid, the suit says. Casey’s claims its stock price would have jumped above $40; instead, it has since settled at about $36 per share, which (according to Casey’s) give the Couche-Tard offer a legitimacy it doesn’t deserve.
The suit, filed in federal court in Iowa (where Casey’s is based), asks a judge to find that Couche-Tard violated securities laws by failing to disclose its stake in Casey’s and its plans to sell that stake immediately after making its offer public. The suit also asks the judge to enjoin Couche-Tard from taking any steps to push its tender offer on Casey’s shareholders, a condition that may impact Couche-Tard’s plans to nominate hostile directors at Casey’s next shareholder meeting, M&A experts tell us today.
None of those M&A experts were surprised about the suit. “Litigation of this nature is run-of-the-mill in hostile transactions,” says Daniel Wolf, a partner at Kirkland & Ellis. “But it’s somewhat unusual for a potential buyer to be trading in and out of the stock of the target company” around the time of a public offer, Wolf adds. Wolf and others we talked to say target companies file this sort of litigation mostly as a public relations move and in the faint hopes that discovery might turn up something nefarious. Wolf also points out that the $10 million profit Couche-Tard allegedly made on its sale of Casey’s stock would go a long way toward covering advisory fees and other costs of its takeover attempt.
June 11, 2010