Seven & i Holdings Co., the Japanese parent company of 7-Eleven, said in a statement Wednesday that it has received a revised proposal from Alimentation Couche-Tard Inc.RICHARD A. BROOKS/AFP/Getty Images
Alimentation Couche-Tard Inc. ATD-T has dramatically increased its offer to acquire the Japanese parent of 7-Eleven as the Canadian owner of Circle K seeks to dominate the global convenience-store business.
Seven & i Holdings Co. SVNDY said in a statement Wednesday that it has received a revised proposal from Couche-Tard. While the Japanese company did not disclose the size of the latest Canadian offer, a source familiar with the matter said the new price is roughly US$47-billion. That would be a 22-per-cent boost on a per-share basis from the initial offer of about US$39-billion.
The Globe and Mail is not identifying the source because they weren’t authorized to speak publicly on the issue. Bloomberg first reported the higher offer. Couche-Tard did not respond to multiple requests for comment.
Couche-Tard sent its latest all-cash offer of US$18.19 per share on Sept. 19, the source said. Although Seven & i said in its statement Wednesday that it is in “current discussions” with Couche-Tard, the source said no substantive negotiations have taken place since the higher offer was submitted.
Couche-Tard’s ‘Cowboy Canadian’ eyes his 7-Eleven prize, but the stakes are sky-high
As recently as Sept. 9, the Japanese company was refusing to engage with Couche-Tard, even on the external adviser-to-adviser level, and also rebuffed an offer to sign a non-disclosure agreement that would have allowed both sides to share information.
Couche-Tard initially offered to pay US$14.86 per share for Seven & i in August, though even at that price, the proposal already represented both the largest-ever foreign takeover of a Japanese company and Couche-Tard’s largest acquisition since the company was founded in 1980.
“The revised offer has clearly raised pressure on Seven & i’s board to create value for shareholders, either through a sale of the business or other means,” Canaccord Genuity analyst Luke Hannan said Wednesday in a note to clients.
While Seven & i is reportedly considering a sale of its supermarket business and part of its Seven Bank subsidiary – moves activist investors in the Japanese company such as ValueAct Capital Management LP have been urging for years – Mr. Hannan said it is “unlikely the company will find a significantly better deal than the one Couche-Tard has just put forward.”
According to RBC Capital Markets analyst Irene Nattel, Couche-Tard could take on US$19-billion in debt, without exceeding its previous borrowing levels as measured by the ratio of debt to earnings, to fund a possible deal. In order to honour its commitment to complete any transaction entirely with cash, that debt level suggests Couche-Tard would need to sell about $38-billion in stock, according to Globe and Mail calculations.
That would be more than eight times larger than the biggest Canadian equity offering currently on record, which took place almost exactly one year ago when Enbridge Inc. raised $4.6-billion through a bought deal to acquire U.S. natural gas pipelines. It could also dilute the holdings of current Couche-Tard shareholders by more than 50 per cent and reduce the stake currently owned by the company’s four founders from 25 per cent to about 16 per cent, according to Globe calculations.
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. It is widely expected that several large existing investors would play a key role in any major stock sale that Couche-Tard would need to complete in order to finance a potential transaction.
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.
Combining Circle K and 7-Eleven locations in the United States would result in roughly 20,000 stores all owned by the same company. 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.
Analysts estimate that 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.
Seven & i last month said that Couche-Tard’s initial bid “grossly undervalues” the company and said it was better positioned to maximize shareholder value as a stand-alone company. Investors will be watching closely for evidence to support that claim on Thursday, when it is due to release its latest quarterly results.
However, Japanese newspaper Nikkei reported Wednesday that those results were likely to show a 20-per-cent drop in operating profit compared with the same three-month period in 2023.
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.
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 month. In response, the Canadian company expressed a willingness to engage in those discussions.
“When entering new markets, Couche-Tard always takes a humble approach,” the company said at the time. “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.
With reports from David Milstead