Cars drive past a 7-Eleven convenience store in Yokohama, Japan on August 23, 2024.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 in the months ahead, even as questions mount about how much it’s 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 Thursday, saying the company has a deep respect for Seven & i and the business they’ve 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 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.”
Montreal-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. A transaction would be the biggest foreign takeover of a Japanese company and the developments are being closely watched by investors and other market participants as test of Japan’s new government guidelines that urge corporations to take offers for their businesses seriously.
The combined corporation would be the fourth biggest retailer in the world after Walmart, Amazon and Costco, with about US$100-billion in annual revenue and more than 100,000 stores.
The companies have said almost nothing since on a potential transaction and Mr. Miller said he would not offer any further details on Thursday. 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 proposal. Couche-Tard’s stock value is about US$52-billion.
Media reports out of Japan Thursday said the board of Seven & i Holdings will send Couche-Tard a letter 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, which hasn’t been made public, doesn’t reflect the value of the business and growth prospects, 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 company executives said on the earnings call.
Speaking about the company’s approach generally to mergers and acquisitions, Couche-Tard Chief Financial Officer Filipe Da Silva told analysts Thursday that Couche-Tard has always been financially disciplined in deals and it looks at returns 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, but always keeping in mind a financial and disciplined approach,” he 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.
On Wednesday, Mr. Hannasch did not refer directly to Seven & i in the company’s earnings release, but did talk about the potential for consolidation in a U.S. market dominated by family-owned gas stations and corner stores. In the release, he highlighted Couche-Tard’s US$1.6-billion purchase of 270 stores under the GetGo Café + Market brand from supermarket chain Giant Eagle Inc., which was announced last month.
“The fragmented market in the United States offers significant consolidation opportunities, and the challenging economic landscape is accelerating this trend, creating exciting growth prospects for us,” said Mr. Hannasch, who is set to retire this week. “With our strong balance sheet and customary financial discipline, we are optimistic about future deals at the right price and fit.”
A tie-up between the two companies would almost certainly trigger a review by U.S. competition authorities.
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.
