(March 26): Private equity firms are showing strong interest in buying about 2,000 North American convenience stores that could be divested if Alimentation Couche-Tard Inc succeeds in its ¥7.39 trillion (US$49 billion or RM217.31 billion) endeavour to buy out Seven & i Holdings Co, the chief financial officer of the Canadian company said.

“We are putting in front of these private equity funds a network of 2,000 stores with a national presence, very strong footprint in some of the states,” Filipe Da Silva said in an interview, adding that it would be the fifth- or sixth-largest operator in the US. “The level of interest is really high.”

After being rebuffed for more than half a year, Couche-Tard, the parent company of the Circle K brand, agreed with Seven & i to seek a buyer for overlapping retail outlets as a prerequisite for takeover talks. The process is aimed at making sure that any deal won’t fall apart because of US antitrust concerns. 

Potential buyers for a package of 7-Eleven and other convenience stores have until the end of March to express their interest, Da Silva said, confirming an earlier Bloomberg report on the deadline. 

Seven & i has more than 13,000 locations in the US and Canada under a variety of brands, including franchises and stores operated under licence. Couche-Tard has about 9,200 in those two countries. 

Couche-Tard has also put a termination fee on the table, Da Silva said, adding that it was high enough to show the company would proceed with talks. The fee would be a “painful” amount for the Laval, Quebec-based company to pay if any agreed deal falls through.

“It’s a number that shows clearly the commitment of Couche-Tard to take further action if it’s required to make this happen,” the CFO said.

Seven & i, for its part, is seeking to remain independent and focus more on its core convenience-stores business by boosting shareholder value through a series of measures, including the sale of an underperforming retail business, a ¥2 trillion share buy-back and a new chief executive. 

Earlier this week, the Japanese retailer said Couche-Tard is “understating the risk” of a deal being blocked by the US Federal Trade Commission. “Resolving antitrust matters is not nearly as simple as selling a few stores — the divestiture package required for this transaction to even have a chance would be unprecedented in size, complexity, and scale,” Seven & i said in a statement on Tuesday.

While De Silva acknowledged that Couche-Tard is offering to sell stores it currently doesn’t even own, he said the company is committed to making sure that they would be sustainable and competitive under a different owner. Couche-Tard would offer support for any new owner in the first years of operations, he added.

Potential buyers would most likely be private equity investors because other US convenience-store operators would still run into antitrust scrutiny, the CFO said. Once a potential acquirer is identified, the next step would be to get “fulsome engagement” with Seven & i and speak with the board’s special committee reviewing Couche-Tard’s proposal. 

With access to financial information to better assess potential synergies, there may be room to enhance Couche-Tard’s offer, Da Silva said, reiterating a point made by founder Alain Bouchard two weeks ago in Tokyo, when he and other executives held a news conference to make their case for the deal.

Couche-Tard’s takeover proposal has been weighing on its stock price since it became public in August, with the shares down more than 17% from last year’s high of around C$85 (RM263.53). Seven & i’s shares remain around 22% below Couche-Tard’s proposed buyout price, reflecting investor uncertainty over the deal and the company’s turnaround plan.

Da Silva said there wouldn’t be much dilution if a deal with Seven & i were to succeed because it would be largely financed with debt. While Couche-Tard’s credit rating, which is currently BBB+ with S&P Global Ratings, might be temporarily downgraded, it would go back up within two to three years, he added. 

“On earnings per share, it’s highly accretive from day one” because of synergies and geographic diversification, the CFO said. “Financially speaking, we are not putting the company at risk.” 

Uploaded by Tham Yek Lee