A customer is seen inside a 7-Eleven convenience store along a street in central Tokyo on Sept. 9. The Canadian owner of Circle K has said it will pursue a takeover of global convenience store rival 7-Eleven, even after the Japanese parent company rejected its initial offer.RICHARD A. BROOKS/AFP/Getty Images
Alimentation Couche-Tard Inc. ATD-T wants to push ahead with an effort to buy 7-Eleven’s Japanese parent company as it seeks to become the world’s largest convenience store operator.
But it’s running up against a target that’s refusing to enter into serious talks until it increases its bid from the US$39-billion initially offered.
Laval, Que.-based Couche-Tard, which owns the Circle K chain, said in a statement released late Sunday that it remains “highly focused” on moving forward with a takeover of Seven & i Holdings SVNDY that’s in the best interest of both corporations and their stakeholders. The Canadian company said it wants to do a friendly deal and urged the Japanese company to engage.
“We continue to have strong conviction that a combination with 7&i has clear strategic and financial benefits for both companies’ customers, employees, franchisees and shareholders,” Couche-Tard said in the statement. “We believe that, working together, we can successfully reach and complete a mutually agreeable transaction.”
Couche-Tard said it asked to have its advisers speak with Seven & i’s advisers, a request that was rejected. It also offered to enter into a non-disclosure agreement (NDA) that would let both sides share information with a goal of finding “more value” but said that was also rebuffed. “We remain ready and willing to enter into an appropriate NDA to advance friendly discussions,” Couche-Tard said.
Just hours later, Seven & i said Monday that it feels Couche-Tard’s initial takeover proposal is not enough for the company to start substantive talks on a potential deal. It said it would be willing to enter discussions if the Canadian company makes an offer that “fully recognizes Seven & i’s stand-alone intrinsic value” and addresses regulatory concerns.
Couche-Tard ade an all-cash offer on Aug. 19 worth about US$14.86 per share for Seven & i, valuing the company at about US$39-billion. The offer has been formally rejected as too low and “opportunistically timed” by a special committee of Seven & i directors that analyzed it. The board members don’t appear to be against the idea of an acquisition itself, however. The offer of US$14.86, or 2,127 yen at Monday’s exchange rate, is a premium of about 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.
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.
Couche-Tard is the first foreign company to attempt the acquisition of a major 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.
But the new guidelines have never been tested by a major transaction. If Couche-Tard ends up acquiring Seven & i, it would be the largest acquisition of a Japanese company by a foreign one in history. It would also be the Canadian company’s largest acquisition since it was founded in 1980.
In public statements on its interest in Seven & i, Couche-Tard has highlighted what it says is a successful history and track record of acquisitions, including working with regulators to satisfy competition concerns. It said it would consider divestitures, together with Seven & i, that might be required to secure anti-trust approvals.
Couche-Tard chairman Alain Bouchard and his team have completed 75 acquisitions from 2004 to this past April, adding 13,300 stores in the United States, Hong Kong and elsewhere. Their last major deal was for TotalEnergies in Europe.
Based on what it called “substantial work and preparation” on a potential takeover of Seven & i so far, Couche-Tard said it is confident it has the means to finance the deal in cash and that financing would not be a condition to closing. It said it has well-established relationships with major financial institutions and investors who are willing to support the company in this transaction.
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 ties to major pension funds and institutional shareholders, including the Caisse de dépôt et placement du Québec.