Seven & i’s logo at a 7-Eleven convenience store in Tokyo, on Aug. 19.Kim Kyung-Hoon/Reuters
Canada’s Alimentation Couche-Tard Inc. ATD-T is not abandoning its quest to acquire 7-Eleven’s Japanese parent company as it seeks to become the world’s largest convenience store operator.
Despite Seven & i Holdings Co.’s rejection of Couche-Tard’s initial offer Friday, the Laval, Que.-based Circle K parent released a statement Sunday evening urging the Japanese company to continue discussions.
“Given the mutual benefits of a combination, we are disappointed in 7&i’s refusal to engage in friendly discussions,” Couche-Tard said. “We remain highly focused on consummating a transaction with 7&i that is in the best interests of all constituencies.”
The Canadian company offered to continue discussions indirectly through each side’s external advisers and also offered to enter into a nondisclosure agreement, but both offers were rejected, Couche-Tard said.
In a statement Monday, Seven & i repeated that it feels Couche-Tard’s initial takeover proposal is not enough for the company to start substantive talks on a potential deal. That’s why it has not asked its advisers to engage with Couche-Tard’s not signed nondisclosure agreements, the company said.
“We remain open to engaging in sincere discussions should Couche-Tard put forth a proposal that fully recognizes Seven & i’s stand-alone intrinsic value” and addresses regulatory concerns, Seven & i said.
While Couche-Tard did not reference the roughly US$39-billion offer price, which Seven & i said last week “grossly undervalues” the company, its statement said it had “sufficient capacity to finance the transaction in cash.”
“We are a sophisticated and disciplined user of the capital markets and have well established relationships with major financial institutions and investors who are willing to support us in this transaction and that financing would not be a condition to closing,” the statement said.
Couche-Tard says it is ‘confident’ about 7-Eleven parent takeover as questions swirl on price
According to RBC Capital Markets analyst Irene Nattel, Couche-Tard has the ability to take on US$19-billion in debt to fund a possible deal. The company also has long-standing relationships with major pension funds and institutional shareholders, including the Caisse de dépôt et placement du Québec, which owns roughly 3.5 per cent of Couche-Tard.
The statement also addressed regulatory concerns raised by Seven & i, as the combined company would have roughly 20,000 stores in the U.S. alone. That would make Couche-Tard the No. 1 player in that market by a substantial margin, with the next-largest being the 2,600-store Casey’s General Stores Inc. chain.
“As 7&i and Couche-Tard have both done previously as part of successful acquisitions, we would, alongside 7&i, jointly consider divestitures that may be required to secure regulatory approvals,” the statement said.
Analysts estimate the Canadian company would need to sell at least 1,000 locations in the U.S. in order to satisfy American regulatory concerns over Circle K and 7-Eleven joining forces.
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,” the Japanese company told Couche-Tard last week. In its statement Sunday, the Canadian company expressed a willingness to engage in those discussions.
“When entering new markets, Couche-Tard always takes a humble approach,” the statement said. “We would respect how 7&i operates in Japan.”
Far from being a small store selling milk and snacks, as 7-Eleven locations in North America are known, the chain’s Japanese locations are far more integrated into their local communities. People are able to pay their taxes at Japanese 7-Eleven locations, for example, and travellers can check their bags at their local 7-Eleven before going to the airport. Couche-Tard also acknowledged that Japanese 7-Eleven stores play an important role in that country’s emergency response system.
“Couche-Tard also has deep experience supporting our communities during crises, including during pandemics, hurricanes, fires, floods and other devastating natural disasters,” the statement said. “Similar to 7&i, we stay open, provide essentials and are important to emergency responses in our communities.”
Couche-Tard is the first foreign company to attempt the acquisition of a Japanese business since Tokyo issued a new set of guidelines for mergers and acquisitions last year. Experts say the new guidelines are intended to make it easier for foreign buyers to get deals done in Japan and were issued in response to decades of criticism that Japanese corporate takeover rules were overly protectionist.
However, the new guidelines have never been tested by a major transaction. If Couche-Tard ends up acquiring Seven & i, it would be its largest acquisition since it was founded in 1980.
It would also be the largest acquisition of a Japanese company by a foreign one in history.
The current “stalemate” between the two companies likely reflects the Seven & i board’s view that Couche-Tard’s initial offer is very far from where it would consider re-engaging, Bank of Montreal analyst Tamy Chen said in a research note. In his own note, Desjardins analyst Chris Li said Couche-Tard has in the past shown a willingness to increase its offer once it has access to information allowing it to calculate a higher price.
While Japan represents the single-largest market for 7-Eleven, with more than 21,000 locations in the country, analysts have said Couche-Tard is at least partly motivated by the company’s substantial U.S. footprint, including several thousand Speedway stores that Couche-Tard tried and failed to acquire in 2020.
Seven & i ultimately paid US$21-billion in cash to acquire the 3,900-location Speedway chain.
This is Couche-Tard’s second attempt to acquire 7-Eleven. In 2005, Couche-Tard founder and then-chief executive officer Alain Bouchard flew to Tokyo to personally pitch a transaction that was immediately rebuffed.
In its letter rejecting Couche-Tard’s initial bid, Seven and i said it remained “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.”
With a report from Nicolas Van Praet.