Bad timing for Couche-Tard's hostile bid
For a sense of how a sea change in market sentiment can derail the best-laid corporate plans, look no further than what's happening to Alimentation Couche-Tard's hostile $1.9-billion (U.S.) bid for U.S. chain Casey's General Stores.
Couche-Tard, chasing 7-Eleven for status as the top dog in convenience stores, has mastered the art of growth through acquisition. The 5,800-outlet Canadian chain first set its sights on Iowa-based Casey's and its 1,500 stores late in 2009. When the U.S. company turned down friendly overtures, Couche-Tard opted to force the issue, going public in April with a $36-a-share bid - a 14 per cent premium to where Casey's stock was trading.
As students of these takeovers know, hostile takeovers are always a challenge. Less than one in three actually end up winning the day. White knights often appear, or everyone gets chummy once the aggressor puts a little more cash on the table.
Despite these odds, Couche-Tard and its advisers at Credit Suisse had every reason to be optimistic in April. One factor in the Laval, Que.-based company's favour was easy access to the financing needed to support this bid. Credit markets were wide open, and all sorts of non-investment-grade bond deals were getting done. So Couche-Tard could count selling high-yield debt or taking out a bridge loan from banks to fund its all-cash offer.
What a difference two months make.
Courtesy of the well-chronicled sovereign debt crisis in Europe, credit markets are in a tailspin. The U.S. high-yield debt market - that's the polite term for junk bonds - has gone from smokin' hot to stone cold. And Couche-Tard has lost that easy access to money it needs to fund this takeover.
"When this deal was first proposed, in early April, the view was the entire $1.9-billion could be placed in the high-yield market, easily," said one analyst following the takeover. "Now, Couche-Tard wouldn't be able to raise $1-billion [in high-yield debt], which means they are likely to need to issue significant equity."
On Tuesday, the first session after a long weekend, sharp-eyed reporters at Bloomberg noted that not a single U.S. company was able to sell corporate debt of any flavour. The deep U.S. bond market saw $2.2-billion of new issues the session after the Memorial Day weekend a year ago. And, in May this year, there was half the volume of new issues that the U.S. corporate bond market saw in April.
Couche-Tard was forced to make a bid for Casey's that is conditional on the Canadian company getting financing for its offer. That is unusual - most companies nail down funding before firing up the takeover engine.
But Couche-Tard can't count on bond markets, and securing bank lines of credit likely involves paying big fees to potential lenders. Selling equity is an option, but that would dilute existing shareholders, something the Canadian chain would prefer to avoid. Couche-Tard has more than $600-million of cash and existing credit available, and is clearly hoping that the credit market improves between now and the time it must write a cheque to shareholders at Casey's.
The dynamic in this takeover is now familiar to anyone who has ever sold a home: Couche-Tard says it really, really loves your place, but its offer is only good if the bank agrees to the mortgage.
Weak credit markets have injected unwanted uncertainty into this takeover, and that's the last thing a hostile bidder needs. Ideally, Couche-Tard wants to come at Casey's from a position of strength, and force its board to negotiate a friendly deal. A lack of committed financing gives Casey's board one more reason to just say no to the Canadians.
NBF gets Swiss help
National Bank Financial launched a second equity sales desk in Switzerland on Wednesday by hiring away a team from BMO Nesbitt Burns.
The investment dealer arm of National Bank is a proud parent to a spanking new office in Lugano, where two new managing directors will cover Italian-Swiss clients in the canton and customers in Italy.
The two new employees are Paolo Bernasconi and Enzo Salvati, and both have more than 20 years experience in pitching Canadian equity stories to European clients. They report to the head of the National Bank Financial desk in Geneva.
The pair came free as former employer BMO picked off an entire equity sales team in Europe from UBS Securities. National Bank Financial now has 12 sales professionals in the U.K. and Europe, along with support staff.
CIBC gets energy help
CIBC World Markets broadened its coverage of energy companies on Thursday by luring junior oil analyst Arthur Grayfur away from Canaccord Genuity Corp.
The wholesale banking arm of Canadian Imperial Bank of Commerce has hired a number of energy analysts over the past six months, after losing the core of its team late last year to new roles at oil and gas companies and money managers.
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
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Alimentation Couche-Tard / ATD.B-TSX
Thursday's close
$19.36, down 53 cents
SOURC E / BLOOMBERY
