A customer shops in a 7-Eleven convenience store in Tokyo, on Aug. 19.Kim Kyung-Hoon/Reuters
The Japanese parent of the 7-Eleven convenience-store chain has rejected a US$39-billion takeover approach from Canada’s Alimentation Couche-Tard Inc. ATD-T, saying the bid is loaded with regulatory risk and grossly undervalues the company.
But Seven & i Holdings Co. SVNDY didn’t rebuff the idea of an acquisition outright, holding the door open for deal talks on improved terms. Couche-Tard is widely expected to come back with a sweeter and more detailed offer, setting the stage for what could be several rounds of negotiations.
In a letter sent to Couche-Tard chairman Alain Bouchard and made public Friday, Seven & i says it’s willing to sincerely consider any proposal that’s in the best interests of its stakeholders, but that what the Canadian company has proposed so far falls well short. The response comes after a review of the offer by a committee of independent outside directors at the Japanese company, led by Stephen Dacus.
“We are open to engaging in sincere discussions should you put forth a proposal that fully recognizes our stand-alone intrinsic value and addresses our concerns regarding certainty of closing in the current regulatory environment,” Mr. Dacus told Mr. Bouchard in the letter. “However, we do not believe, for several critical reasons, that the proposal you have put forward provides a basis for us to engage in substantive discussions regarding a potential transaction.”
Laval, Que.-based Couche-Tard, which owns the Circle K chain, revealed last month that it made a takeover approach for Seven & i, but it did not spell out any other details of the offer. Mr. Bouchard has coveted his Japanese rival for years and he wants to do a friendly deal. Lawmakers and market participants alike are now watching intently for his next move.
Couche-Tard’s approach will test Japan’s new government guidelines that urge corporations to take unsolicited offers for their businesses seriously, notably those from foreign buyers. Observers say the outcome could lead to a potential wave of M&A deals or, on the flip side, reinforce the protectionist tendencies that have characterized the country’s corporate and political classes over time. Should an agreement be finalized, it would be the biggest-ever foreign takeover of a Japanese company.
Mr. Dacus said the special committee found Couche-Tard’s all-cash offer of US$14.86 a share to be “opportunistically timed.” The bid “grossly undervalues our stand-alone path and the additional actionable avenues we see to realize and unlock shareholder value in the near to medium term,” he added.
The offer of US$14.86, or 2,129 yen, is a premium of 21 per cent to Seven & i’s stock price prior to the disclosure of the approach. But it’s still below where the shares were trading in late February, and below the 2,400 yen many analysts had expected Couche-Tard to offer.
Seven & i shares inched down 1.4 per cent Friday in Tokyo, generally holding the gains they’ve made since news of the approach first broke Aug. 19. That suggests investors are betting Couche-Tard will continue its pursuit.
“This is a deal they want,” said Kash Pashootan, chief executive officer of First Avenue Investment Counsel, which holds Couche-Tard shares among its $4-billion in assets under management. “They are big believers in active and aggressive M&A. ... 7-Eleven is an acquisition that will absolutely move the needle. And there aren’t that many of them out there.”
Couche-Tard spokespeople did not respond to a request for comment Friday.
In his letter, Mr. Dacus also raised regulatory concerns. He said even if Couche-Tard returned with another offer that was very significantly higher, its proposal so far “does not adequately acknowledge the multiple and significant challenges” that a deal would face from U.S. competition law enforcement agencies in the current environment and “provides no certainty to closing.”
“Beyond your simple assertion that you do not believe that a combination would unfairly impact the competitive landscape and that you would ‘consider’ potential divestitures, you have provided no indication at all of your views as to the level of divestitures that would be required or how they would be effected,” Mr. Dacus told Mr. Bouchard. “Your proposal also does not indicate, for example, the timeline you believe would be required to clear regulatory hurdles, or whether you would be prepared to take all necessary action to obtain regulatory clearance, including by litigating with the government.”
More discussion would also be required on “the crucial role” that Seven & i plays in everyday life in Japan across food retail, banking and other services, Mr. Dacus said. He made no mention of any potential challenges from the Japanese government, which have been reported in the media.
While the criticisms of Couche-Tard’s initial approach is fair, the company has an extensive track record of complying with regulatory requirements and anticipating them, Desjardins analyst Chris Li said in a note. For example, while in the hunt for Marathon Patroleum Corp.’s Speedway chain in 2020, Couche-Tard scouted for a partner willing to take over a major block of gas stations in the United States to satisfy U.S. antitrust rules and make a deal work, The Globe and Mail reported at the time.
A tie-up between Couche-Tard and Seven & i would almost certainly trigger a review by competition authorities in the U.S., Japan and other countries. Analysts estimate the Canadian company would be forced to sell more than 1,000 of the two chains’ 20,000 U.S. outlets to win regulatory approval for a takeover.
On a call with analysts Thursday, Couche-Tard CEO Alex Miller said his company is “confident” it could finance and complete a takeover of the 7-Eleven chain, which would create the fourth-biggest retailer in the world after Walmart Inc., Amazon.com Inc. and Costco Wholesale Corp., with annual revenue topping US$150-billion and more than 100,000 stores, according to data from the U.S. National Retail Federation.
“We look forward to engaging with Seven & i constructively,” Mr. Miller said. “We see a strong opportunity to grow together, enhance our offerings to customers, and deliver a compelling outcome for the shareholders, employees and key constituencies of both companies.”
The Japanese owner of 7-Eleven has rejected a takeover offer from Quebec-based Alimentation Couche-Tard Inc. Seven & i Holdings Co. Ltd. said the proposal by the Canadian convenience store operator 'grossly undervalues' the company.
The Canadian Press