Cars drive past a 7-Eleven convenience store in Yokohama, Japan on Aug. 23.YUICHI YAMAZAKI/AFP/Getty Images
Canadian convenience-store giant Alimentation Couche-Tard Inc. ATD-T says it is “confident” that it can complete a takeover of 7-Eleven parent Seven & i Holdings Co. Ltd. SVNDY in the months ahead, even as questions mount about how much it’s able and willing to pay.
Alex Miller, who replaces Brian Hannasch as Couche-Tard’s chief executive this week, sketched out the company’s high-level perspective on a possible deal, saying the company has a deep respect for Seven & i and the business its leaders have built around the world. That includes the Japanese company’s operating model, franchisee network and brand, he said.
“We are confident in our ability to finance and complete this combination, and we look forward to engaging with Seven & i constructively,” Mr. Miller told analysts Thursday on the company’s first-quarter earnings call. “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.”
Laval, Que.-based Couche-Tard, which owns the Circle K chain, revealed last month that it made a takeover approach for Seven & i in a friendly deal potentially worth US$50-billion. Mr. Miller’s comments suggest Couche-Tard is more advanced in its bid work than is widely believed, though one source cautioned that these are early days in the process and that there is no firm indication yet that Seven & i wants to sell. The Globe and Mail is not naming them because they were not authorized to speak publicly about the matter.
The combined company would be the fourth-biggest retailer in the world after Walmart, Amazon and Costco, with annual revenue topping US$150-billion and more than 100,000 stores, according to data from the U.S. National Retail Federation. For that reason alone, the developments are being closely watched by investors, political leaders and stakeholders in both companies.
Should an agreement be concluded, it would be the biggest-ever foreign takeover of a Japanese company. Observers say the outcome would test Japan’s new government guidelines that urge corporations to take offers for their businesses seriously – and would either open the door to a potential wave of M&A deals or reinforce the protectionist tendencies that have characterized the country’s corporate and political classes over time.
Since acknowledging Couche-Tard’s approach in late August, the two companies have said almost nothing on a potential transaction. Still, Mr. Miller was keen Thursday to emphasize that Couche-Tard is a collegial suitor sensitive to Seven & i’s role in Japanese life and culture, not one intent on imposing a head-office-knows-best edict. There are parallels between the two companies, he said.
“We have a strong history of using a partnership approach when entering new markets, always maintaining and learning from local leadership and empowering local leaders and operators with resources to enable them to keep serving their customers,” he said. “Like Seven & i, we have deep experience supporting our communities during crisis, including during pandemics, hurricanes, fires and floods, to provide essential goods and services.”
Seven & i, which has a market capitalization of about 5.6 trillion yen (US$39-billion), has said it set up a special committee to analyze the Couche-Tard proposal. Though details of the non-binding bid have not been made public, some analysts and fund managers believe a price in the range of 2,400 yen a share is what Couche-Tard is offering in its initial overture. Seven & i was trading Thursday at about 2,164 yen a share.
Media reports out of Japan Thursday said the board of Seven & i Holdings would send Couche-Tard a letter as soon as Friday saying that its offer price is too low and that U.S. antitrust rules are a concern in any potential deal. The board believes that the suitor’s offer doesn’t reflect the value of the business and growth prospects and it’s inviting Couche-Tard to revise it, the reports said. The business daily Nikkei was first to report the development.
Seven & i did not respond to a request for comment. A Couche-Tard spokeswoman declined to comment beyond what executives said on Thursday’s earnings call.
Speaking generally about the company’s approach to mergers and acquisitions, Couche-Tard chief financial officer Filipe Da Silva told analysts on that call that Couche-Tard has always been financially disciplined in deals and it looks at return on capital above all else. The company could take on a net debt-to-earnings ratio of 3.75 times without affecting its credit ratings, he said.
“That doesn’t prevent us from considering higher leverage if needed,” Mr. Da Silva said. The company has a solid balance sheet and a strong syndicate of banks and other financial partners to help it fund deals, he said.
Mr. Hannasch, who’s staying on with Couche-Tard as a special M&A adviser for a couple of years, said the retailer’s management team is optimistic about doing future acquisitions at the right price and fit. But he stressed that they’ve walked away from many more deals than they’ve done.
Couche-Tard put on ice a US$5.6-billion offer for gas-station chain Caltex Australia in 2020 and was in the running to buy Marathon Petroleum’s U.S. Speedway chain before bowing out. Mr. Hannasch would later say that the sale of Speedway, won by Seven & i, was done “at a value that quite honestly I can’t understand.” Couche-Tard then tried to buy French grocer Carrefour SA in 2021 but was rebuffed by the French government, which said it wanted to ensure the security of its food sector.
A tie-up between Couche-Tard and Seven & i would almost certainly trigger a review by competition authorities in the United States, Japan and other countries. Analysts predict 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.
That is a substantial sale but it wouldn’t necessarily quash a deal. If Couche-Tard acquired Seven & i, it would hold approximately 13 per cent of the fragmented U.S. corner-store and gas-station market.