Couche-Tard founder and Chairman Alain Bouchard speaks to shareholders the company's annual meeting on Sept. 18, 2019 in Laval, Que.Ryan Remiorz/The Canadian Press
In 1980, two Quebeckers from the humblest of backgrounds launched careers destined to carry them to the top of their professions.
That was the year singer Celine Dion, the youngest of 14 siblings, recorded her first song. It’s also the date frustrated grocery-store executive Alain Bouchard, whose father’s excavation business went bust, decided to strike out on his own by opening a single convenience store in Laval, a Montreal suburb.
Last month, Queen Celine took what may be her last turn on stage by opening the Paris Olympics before an audience measured in billions.
On Monday, Mr. Bouchard, the 75-year old co-founder and executive chairman of Alimentation Couche-Tard Inc. ATD-T, unveiled a career-defining deal to become the king of convenience. Montreal-based Couche-Tard revealed plans to take over a far larger rival, 7-Eleven parent Seven & i Holdings Co. Ltd. SVNDY of Japan, and create the largest retail chain on the planet, with more than 100,000 stores.
In a sign of the respect Mr. Bouchard and the Couche-Tard team command in capital markets, Seven & i’s stock price jumped 23 per cent on news of the potential offer. Investors believe Couche-Tard has a decent shot at landing the largest foreign takeover in Japan’s history by overcoming the country’s historically insular boards, along with hostile U.S. regulators.
Japan’s love for convenience stores key to Couche-Tard’s 7-Eleven quest
Couche-Tard shareholders also showed they are unfazed by the possibility of the historically conservatively financed retailer borrowing heavily to pay for a US$40-billion-plus acquisition. On Monday, RBC Capital Markets analyst Irene Nattel said in a report: “The approach is steeped in Couche Tard’s DNA: it is bold, it is measured, and if successful (a big ‘if’) would be the culmination of a journey to become the largest c-store operator in the world.”
Montreal-based Couche-Tard’s share price fell by just 2 per cent on Monday – double-digit declines are frequent when transactions of this scale are announced.
Mr. Bouchard built Couche-Tard through a series of successful takeovers, including the 2003 acquisition of the Circle K chain for US$804-million. He also arguably saved the company by walking away from deals when valuations hit frothy levels, including abandoning a US$5.6-billion bid for Australia’s Caltex gas-station chain in 2020, after the COVID-19 pandemic hit.
Early this year, Couche-Tard set an ambitious goal of doubling its earnings before interest, taxes, depreciation and amortization (EBITDA) to US$10-billion in four years’ time. In a report on Monday, analyst Tyler Tebbs at Tebbs Capital said that acquiring Seven & i would fit “the ambition of Alain Bouchard and his appetite for a very big gulp that would catapult him to his 2028 target overnight.”
Couche-Tard first proposed buying its Japanese rival in 2005, but couldn’t reach a deal. The board at Seven & i has a history of entrenchment, according to Mr. Tebbs. The company is in Year 2 of a battle with activist hedge fund ValueAct Capital over governance and strategy.
The political winds may now favour Mr. Bouchard. Couche-Tard’s latest overture, aimed at negotiating a friendly takeover, comes at a time when Japanese regulators are taking steps to open markets to foreign capital.
In 2020, Seven & i expanded in North America by acquiring Marathon Petroleum Corp.’s Speedway gas stations for US$21-billion, topping Couche-Tard for the prize. Since then, valuations for the two chains have gone in opposite directions. Seven & i’s shares have underperformed peers and now trade at nine times the company’s EBITDA, according to Ms. Nattel, while Couche-Tard stock commands a higher premium of 12.5 times EBITDA.
The financial scale of Mr. Bouchard’s ambition is staggering. Couche-Tard will need to borrow about US$19-billion and raise roughly the same amount in equity to acquire Seven & i, according to Ms. Nattel. However, the cost savings from combining two massive retailers are compelling and Mr. Bouchard can count on support from deep-pocketed allies.
The Caisse de dépôt et placement du Québec is a significant shareholder in Couche-Tard, even after the fund manager’s $700-million sale of the company’s shares in July. The Caisse consistently backs Quebec companies with global expansion plans and is widely expected to support Couche-Tard’s bid for Seven & i.
Celine Dion overcame a life-altering medical condition to belt out a few songs at the Paris Games. Alain Bouchard faces far simpler challenges as he vies for control of 7-Eleven’s parent and global leadership in convenience stores.