Couche-Tard approaches 7-Eleven owner about takeover in potentially historic transaction

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Canada’s Alimentation Couche-Tard Inc. ATD-T has approached Seven & i Holdings Co. Ltd. SVNDY, the Japanese parent of 7-Eleven, with an acquisition proposal that would position the Montreal-based company to dominate the global convenience-store industry.

Both companies acknowledged the proposal on Monday. While no financial terms were disclosed and Couche-Tard stressed it had submitted a “friendly, non-binding proposal,” the size of any potential transaction would be of historic proportions.

If Couche-Tard succeeds, it would be the largest acquisition the company has ever made. It would also be the largest acquisition of a Japanese company by a foreign one in history. The sheer size alone is enough to ensure any deal would face intense regulatory scrutiny in both Japan and the United States, where 7-Eleven is by far the most ubiquitous convenience-store brand.

Raymond James estimates Seven & i to be worth roughly US$49-billion, after accounting for the nearly 23-per-cent spike in the company’s Tokyo exchange-traded stock on Monday after the proposal was first reported by Japanese newspaper Nikkei.

The approach is “steeped” in Couche-Tard’s DNA, RBC Capital Markets analyst Irene Nattel said in a note to clients on Monday.

“It is bold, it is measured, and if successful (a big ‘if’) would be the culmination of a journey to become the largest c-store operator in the world,” Ms. Nattel said.

There are roughly 13,000 7-Eleven locations in the U.S., which, according to Canaccord Genuity analyst Luke Hannan, represents 8.5 per cent of the entire market. Couche-Tard’s Circle K locations are the second most common convenience stores in the U.S., with a 3.8-per-cent market share, Mr. Hannan said in a note to clients on Monday.

Together, the two companies control roughly 20,000 U.S. stores or 12.3 per cent of a market that is so fragmented Mr. Hannan said their next closest competitor in terms of scale was Casey’s General Stores Inc., which has a 1.7-per-cent market share with locations in just 16 states.

Raymond James analyst Bobby Griffin told clients on Monday that “some level of divestitures will need to take place within the U.S. industry” in order for any deal to win regulatory approval. But he said Couche-Tard would want to keep the Speedway assets that 7-Eleven acquired in 2021.

Couche-Tard tried and failed to acquire Speedway in 2020, with Seven & i ultimately buying the 3,900-location chain from Marathon Petroleum Corp. for US$21-billion in cash. The proposal disclosed Monday is actually the second time in as many decades that Couche-Tard has tried to buy 7-Eleven.

In 2005, Couche-Tard founder and then-CEO Alain Bouchard flew to Tokyo to personally pitch a transaction that was immediately rebuffed.

Any deal that wins U.S. regulatory blessing will also require approval in Japan, where Western countries have long struggled to complete acquisitions in a regime Ms. Nettel described as “onerous.” However, recent changes to Japanese M&A review procedures could work in Couche-Tard’s favour.

“The typical ‘playbook’ of Japanese target management, when receiving an unsolicited offer, has been extremely difficult to overcome,” Tomoko Nakajima, a partner and head of Japan M&A for global business law firm Freshfields Bruckhaus Deringer LLP, said in a March, 2024, report on a new set of guidelines issued last year by Japan’s Ministry of Economy, Trade and Industry.

Japan’s love for convenience stores key to Couche-Tard’s 7-Eleven quest

Those guidelines have “the objective of encouraging acquisitions that are favorable for the economy and society to occur in a healthily functioning fair M&A market,” the report said.

In its own analysis of those new guidelines, British legal research provider Chambers and Partners said they “will serve the interests of buyers” by bringing Japanese M&A practices “closer to global standards.”

Of all the challenges a potential deal might face, analysts believe financing is among the smallest. RBC’s Ms. Nattel said Couche-Tard has the ability to take on US$19-billion in debt to fund a possible transaction. In another note to clients published on Sunday, before the Seven & i proposal was first disclosed, Ms. Nattel said Couche-Tard’s “attractive cost of capital could very well give rise to an accelerated pace of M&A after a relative drought” between 2018 and 2023.

Canaccord’s Mr. Hannan said the combined company would be able to achieve roughly US$2.2-billion in synergies, or cost savings. As a result, he said, any deal “would be immensely accretive” on an earnings-per-share basis, “even considering the sizable equity stub needed to fund the deal, though the magnitude remains unclear at this point.”

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Beyond sheer scale, there are other reasons why Couche-Tard would want to acquire 7-Eleven. Mr. Hannan said roughly 24 per cent of 7-Eleven’s U.S. in-store sales came from fresh food, drinks and private brands while food made up just 12 per cent of Couche-Tard’s in-store sales. A combined company would be able to leverage 7-Eleven’s food expertise, he said.

Buying 7-Eleven would also dramatically accelerate Couche-Tard’s expansion into Asia, where the company only recently began focusing with the acquisition of Circle K Hong Kong in 2020. 7-Eleven has 21,592 locations in Japan, representing roughly one-quarter of all its stores globally, with nearly 3,000 stores in Tokyo alone.

Separately on Monday, Couche-Tard announced it would acquire GetGo Cafe + Markets, which operates 270 convenience-store and gas-station locations in Pennsylvania, Ohio, West Virginia and Indiana. While no financial terms for that transaction were disclosed, RBC’s Ms. Nattel said the “simultaneous pursuit of both tuck-in and extremely substantive M&A” is something Couche-Tard has done “throughout its history.”

With a report from James Griffiths in Hong Kong