(Oct 17): Alimentation Couche-Tard Inc is interested in buying the entirety of Seven & i Holdings Co, and will keep the local operations of the Japanese convenience store and retail giant intact, chairman and founder Alain Bouchard said.
It is also confident of addressing anti-trust regulatory concerns over a deal that would create the biggest convenience store company in the world, with Bouchard noting that it’s always been able “to have a great solution” for the US Federal Trade Commission (FTC) in past acquisitions.
The resolute approach comes despite a cold shoulder from Seven & i, which Bouchard said did not meet with Couche-Tard’s top management team during their trip to Japan.
“We have invited them. We have tried to organise a meeting, but it didn’t work, but it will eventually,” he said in an interview in Tokyo on Thursday. “We also want to gain a better understanding of the Japanese culture, but mainly now the Japanese concerns” around the deal, he said. “We want to obviously introduce ourselves because people don’t know us.”
The growing intensity of Couche-Tard’s overtures reflects the seriousness of its takeover attempt, which is the third time in two decades it has tried to enter a deal with Seven & i. The Japanese owner of 7-Elevens, gasoline stations and a variety of retail stores rebuffed the Canadian company’s initial approach, which became public in August, for being too low. The owner of Circle K shops then increased its proposed price for Seven & i to US$18.19 per share, valuing the Japanese company at about ¥7.1 trillion (US$47.6 billion or RM204.46 billion).
The Canadian suitor is confident of arranging financing for any deal, and has engaged with one of Japan’s megabanks, chief financial officer Filipe Da Silva said in the interview.
“We are very confident that we will be able to fund this, this transaction, if it’s to happen, and to keep a high investment credit rating,” Da Silva said.
The saga is being seen as a key test of whether corporate Japan, long considered impenetrable for in-bound mergers and acquisitions, is ready for change. An acquisition of Seven & i would mark the biggest-ever takeover of a Japanese company.
On its part, Seven & i is trying to fend off Couche-Tard by embarking on a radical plan to overhaul its operations, splitting the company into two: one business focused on 7-Eleven, convenience stores and gasoline stations, while the other will be a collection of 31 less profitable retail operations that might bring in strategic partners and eventually be listed separately.
Bouchard and Couche-Tard’s executives have spoken with the chair of Seven & i’s special committee evaluating the takeover approach, although not during the current visit, he said on Thursday.
A spokesperson for Seven & i said on Thursday that they had kept any discussions with Couche-Tard private, and will continue to do so. “We will continue to respond sincerely to discussions that fully recognise the intrinsic stand-alone value of our business and also address our regulatory concerns,” the spokesperson said.
Since Couche-Tard’s approach became public, Seven & i sought, and received, a designation of being a core business essential to national security, a step that was seen as an attempt to make it harder for a foreign entity to take over the company. Japan’s Finance Ministry has played down the idea that the designation would make any buyout difficult.
“We do not see that prohibiting us from ultimately realising the transaction,” said Brian Hannasch, the CEO who stepped down earlier this year to serve as an adviser to Bouchard. Couche-Tard took pains to emphasise that they would not tear up one of the country’s most beloved brands.
“The simple answer: We don’t move people around. We don’t change the model. We adapt. We take the best practices from the stores we acquire, or we combine, and we take our best practices together,” Bouchard said. “We will keep the people that run this company here, and they will hopefully share our culture, and we will share their culture, and we will be just strong,” he said, adding that no Canadian executive would be parachuted into Japan to take over the local operations.
Seven & i shares have gyrated throughout the summer, and are now trading at around ¥2,250 apiece, well below Couche Tard’s proposed price of around ¥2,714 at the current exchange rate. That figure is 20% more than the prior indicated offer, and a 50% premium from where the shares were trading at in mid-August.
Seven & i originated as a clothing store a century ago and evolved into a general merchandiser, selling everything from groceries and sundries. After bringing 7-Eleven shops and Denny’s restaurants to the country in 1974, the convenience-store concept turned out to be transformational for the company, which later took over the entire chain and embraced it as part of its name.
For years, Seven & i has faced calls from investors to focus more on its convenience-store business, and some stakeholders are publicly urging the company to negotiate with Couche-Tard rather than embark on internal restructuring. ValueAct Capital Management LP has argued that the Japanese retailer should be worth more than it is now — ¥6 trillion — without a conglomerate discount. Couche-Tard has a market value of US$51 billion, about US$10 billion more than Seven & i, despite a smaller store network.
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