Japan’s Seven & i Holdings, which operates 85,000 stores, said it had received a bid from Circle K operator Alimentation Couche-Tard.Eric Thayer/Getty Images
Time is on Alimentation Couche-Tard Inc.’s, ATD-T side as the Canadian convenience store operator attempts to acquire Seven & i Holdings Co. Ltd. SVNDF and endure what is expected to be a lengthy regulatory approval process to buy the Japan-based parent of the 7-Eleven chain.
On Monday, Laval, Que.-based Couche-Tard revealed it is negotiating a potential US$50-billion friendly takeover of Seven & i, the largest acquisition of a Japanese company by a foreign rival in history. If the two retailers reach a deal, it will require approval from Japanese and U.S. government agencies.
“Any potential transaction would likely face significant scrutiny from regulators,” said analyst Irene Nattel at RBC Capital Markets in a report. But while most companies push for the fastest possible approvals, Ms. Nattel said a regulatory review that takes a year or two could work in Couche-Tard’s favour, “as closing could potentially dovetail with a stabilizing/improving macro [economic] backdrop and more favourable interest rate environment.”
Couche-Tard’s strategy is to maximize the synergies that come with being the largest convenience store operator in the world, and marrying its 7,000 Circle K outlets in the United States with 13,000 7-Eleven and Speedway stores is the key reason for this takeover. Analysts estimate Couche-Tard could cut costs at Seven & i by between 30 and 60 per cent by combining businesses.
During U.S. President Joe Biden’s administration, Federal Trade Commission chair Lina Khan has stepped up scrutiny of takeovers and challenged the perceived monopolization of U.S. business. The FTC has paid particular attention to mergers and acquisitions in consumer-facing sectors such as retail, against a backdrop of rising prices for food and gasoline.
In 2021, Seven & i sold 293 U.S. convenience stores to win FTC approval of its US$21-billion takeover of rival Speedway chain, which had 3,800 outlets. At the time, the FTC said concentration in the retail fuel industry, with only two or three gas station operators competing in many regions, increased the likelihood of collusion on gas prices.
RBC’s research shows 31 per cent of Circle K stores, or close to 2,200 locations, have a 7-Eleven or Speedway within one mile, and more than 1,100 of the Canadian company’s stores are less than half a mile from stores owned by its rivals.
“The simple fact that two stores compete in the same local market is not necessarily enough to order the divestiture of one or the other,” said Ms. Nattel. She said the number of rival convenience stores in any given region would factor into the regulator’s decision.
In February, the FTC sued to block the sued to block the largest proposed supermarket merger in U.S. history, Kroger Co.’s US$24.6-billion marriage to Albertsons Companies Inc., alleging the deal was anticompetitive and would result in higher grocery prices at the two retailers’ 5,000 combined outlets in 48 states.
Kroger and Albertsons announced the merger in 2022 and offered to sell 413 stores to rival C&S Wholesale Grocers Inc., parent of the Piggly Wiggly chain, to meet the regulator’s concerns. The FTC said the proposed divestiture “falls far short of mitigating the lost competition” between the two chains.
While combining 7-Eleven and Couche-Tard’s operations would create the leading U.S. convenience store chain, with 20,000 outlets, the merged chains would only have a 13 per cent stake of a fragmented sector.
“”The FTC would certainly scrutinize this transaction,” said analyst Mark Petrie at CIBC Capital Markets in a report. “While we do not believe the combined market share would be high enough to block a deal, it is safe to say there would be substantial divestitures required, potentially upwards of 1,000 locations.”
In addition to its U.S. stores, Seven & i owns 21,000 convenience stores in Japan. Ms. Nattel said: “The company’s domestic Japanese network is franchisee-focused and high attractive.” In Japan, 7-Eleven sells a selection of cheap, high-quality foods and alcohol, a mix of products with higher profit margins than North American convenience stores.
Over the past two years, Seven & i stock has underperformed rivals such as Couche-Tard and the Japanese company faced an activist campaign from hedge fund ValueAct Capital. Over the past year, Seven & i exited the apparel business, closed dozen of supermarkets and sold its Sogo & Seibu department store division. CIBC’s Mr. Petrie said: “Couche-Tard would likely look to selectively divest or spin out select assets of Seven & i.”
With files from Jameson Berkow and Reuters