JCP Investment Management LLC, BLR Partners LP and Joshua E. Schechter, together significant shareholders of Casey’s General Stores Inc. who collectively own approximately $45 million of the Company’s common stock, on Jan. 3 issued an open letter to Casey’s shareholders. The full text of the letter appears below.

January 3, 2018
To:                  Casey’s Shareholders
Re:                   Casey’s – More Value in a Sale

Dear Fellow Shareholders,
JCP Investment Management, LLC, BLR Partners LP and Joshua E. Schechter (together, “we”) collectively own approximately $45 million of Casey’s General Stores, Inc. (“Casey’s” or the “Company”) common stock. We believe Casey’s shares are significantly undervalued as they do not reflect the true earnings power and full real estate value of the Company’s irreplaceable fleet of 2,000+ stores. We have previously engaged with management regarding our concerns with the Company’s returns on invested capital and capital allocation.

Casey’s no longer delivers best in class returns as measured by either operating metrics or share price performance. Casey’s has missed earnings targets for seven straight quarters due in part to decelerating same store sales and bloated operational expenses. Casey’s has significantly underperformed the industry leader, Alimentation Couche-Tard Inc. (“ATD”), since Casey’s decision to reject ATD’s offer and remain independent in 2010. Casey’s has also underperformed Murphy USA Inc. (“Murphy”) since Murphy became an independent company in August 2013.

Shareholder Returns

 

We are concerned that Casey’s store level returns on invested capital have declined as the Company has gone from operating in 9 states to 15 states. Prior to 2010 (before the offer from ATD), the Company had only operated in nine states since 1995. We believe such rapid expansion coupled with seeming declining returns on invested capital is symptomatic of a company that has been unable to manage growth effectively.

Rapid consolidation has been ongoing in the convenience store industry over the past five years. We have played a constructive role in this consolidation while serving as directors during the successful sale of The Pantry, Inc. (“Pantry”) to ATD in 2014 and as part of a settlement agreement with CST Brands, Inc. (“CST”) which resulted in a sale to ATD in 2016. We note some of the larger transactions in the industry below.

Based on the above transaction multiples, we believe Casey’s shares could be worth from $150 to greater than $170 per share to a potential acquirer. We believe this is realistic given the significant synergies and real estate value that Casey’s offers. We note that ATD is projecting $125 million in synergies for its acquisition of Pantry and between $150-200 million in synergies for its acquisition of CST, both of which were smaller than Casey’s and owned less real estate.

 

The gap between Casey’s current share price and its strategic value is significant. We do not believe that waiting for an increase in share price in the face of significant declining EBITDA is the prudent path to take considering that we believe that Casey’s could potentially realize $150 to greater than $170 in a sale today. We believe that Casey’s Board should immediately engage a financial advisor to explore all strategic alternatives, including a potential sale, merger or similar transaction in order to maximize shareholder value. We encourage you, our fellow shareholders, to let the Board know that you feel the same way.

We are happy to discuss our thoughts in further detail with any interested shareholders.

Sincerely,

James C. Pappas

Managing Member

JCP Investment Management, LLC

JCP Investment Management, LLC is an investment firm headquartered in Houston, Texas that engages in value-based investing across the capital structure. JCP follows an opportunistic approach to investing across different equity, credit and distressed securities largely in North America.