Circle K Operator Alimentation Couche-Tard Bids to Acquire 7-Eleven's Japanese Owner

Alimentation Couche-Tard, the operator of Circle K, has made a preliminary bid to acquire Seven & i Holdings, the owner of 7-Eleven. The deal would create the world's largest convenience store operator with nearly 100,000 locations globally.

Alimentation Couche-Tard's Bid for 7-Eleven Owner Could Create World's Largest Convenience Store Chain

Seven & i Holdings Co., the proprietor of 7-Eleven and a much larger competitor, has been proposed for acquisition by Alimentation Couche-Tard Inc., the operator of Circle K. According to Fortune, this acquisition would represent the most substantial foreign acquisition of a Japanese corporation. A merger would establish the world's greatest operator of approximately 100,000 convenience stores.

On August 19, Seven & i shares experienced a 23% increase in value, having been valued at the equivalent of $31 billion before the announcement of the offer. The company stated the proposal was preliminary and non-binding but did not disclose the terms. Seven & i announced in a statement on August 19 that a "prompt, careful, and comprehensive review of the proposal" will be conducted by a special committee of independent outside directors.

Couche-Tard's valuation of approximately $58.5 billion is considerably higher than that of Seven & i, despite the former having approximately 14,000 stores compared to the latter over 85,000. In Japan, foreign takeovers of companies are exceedingly uncommon. However, the likelihood of a transaction establishing a global convenience-store colossus may be increased by recent modifications to merger and acquisition proposals and activist investors' pressure to increase value, as seen at Seven & i.

“It all depends on the price, and I guess the weak yen has made it more attractive and anything north of ¥7 trillion, the management would have a tough time rejecting,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors Pte. “But knowing the Seven & i management, you can bet on them resisting this if the price is lower.”

Following a report on the proposal by the Nikkei newspaper, Seven & i's shares experienced their most significant increase in history. The company subsequently verified the report. The value of Couche-Tard's offer was not disclosed by either party. The stock had declined by 21% since the conclusion of February, which rendered the organization more appealing to potential investors before the August 19 surge.

ValueAct Capital Management LP, an activist fund, has pressured Seven & i to concentrate on 7-Eleven stores and consider its assets' potential value. The activist fund believes the convenience store business could be worth as much as ¥8,500 per share if it were a standalone listed company. On August 19, Seven & i share closed at ¥2,161.

Seven & i has implemented restructuring measures and initiated a buyback after successfully resisting attempts to remove Chief Executive Officer Ryuichi Isaka. Despite its Tokyo headquarters, Seven & i generates most of its revenue abroad. North America accounted for 74% of sales in the previous fiscal year, while Japan accounted for 25%.

Couche-Tard, the most valuable retailer in Canada, operates convenience stores worldwide under its brands, Circle K and Ingo. It has a history of international expansion and acquired nearly 2,200 European petroleum stations from TotalEnergies SE for €3.1 billion last year. It had previously submitted a $20 billion offer to acquire Carrefour SA, but the French government denied the request.

Analyst Questions Couche-Tard's Ability to Finance 7-Eleven Deal Amid Potential Regulatory Scrutiny

According to Mio Kato, an analyst at LightStream Research, Couche-Tard's balance sheet may need to be more robust to withstand a substantial cash offer.

“I don’t think Seven & i would want to sell and without an attractive cash offer,” Kato said. “The probability of something happening is quite slim.”

Competition regulators may scrutinize any merger between North America's two largest convenience store proprietors. Couche-Tard has nearly 9,000 stores, while Seven & I operates over 13,000 stores in the United States and Canada, including Speedway outlets that it acquired in recent years.

Denny's Corp.'s Japan restaurants, the Ito-Yokado supermarket chain, and its bank comprise the company's operations despite its prominence as a 7-Eleven retailer.

Despite its American origins, the convenience store concept proved transformative for the Japanese company, which fully assumed control of the chain in the United States in 2005 and incorporated it into its name. Over the years, 7-Eleven has developed into a franchise that provides affordable food, beverages, daily necessities, and municipal and delivery services.

Isaka has invested over $25 billion in expanding Seven &'s global footprint, particularly in the United States, where he acquired the Speedway and Sunoco gasoline-station networks. In an interview with Bloomberg News earlier this year, he stated that Seven & i would be interested in making its acquisitions.

“If there’s an opportunity, we’d proactively consider M&A,” Isaka said in January.