Seven and I reject Couche-Tard's $38.5B takeover bid

On Friday, Japanese retail giant Seven & i Holdings rejected Alimentation Couche-Tard’s $38.5 billion cash bid, the largest foreign buyout of a Japanese company.

Seven-Eleven operator Seven & i said the takeover proposal was not in shareholders‘ best interests and would likely face significant antitrust challenges in the U.S., where the combined company would be the convenience store industry’s largest.

Seven & i, which said last month it had received an offer from Circle-K owner Couche-Tard without naming the price, disclosed the bid was $14.86 a share and said it would “sincerely consider” any proposals.

But Seven & i would “resist any proposal that deprives our shareholders of the company’s intrinsic value that fails to specifically address very real regulatory concerns,” it wrote to Couche-Tard.

Stephen Dacus, chair of the Seven & i special committee of independent directors that reviewed the offer, wrote, “We do not believe, for several critical reasons, that the proposal you have put forward provides a basis for us to engage in substantive discussions regarding a potential transaction.”

Couche-Tard did not respond to Reuters’ request for comment. On Thursday’s post-earnings call, Couche-Tard’s new CEO Alex Miller said it was confident in financing and completing the deal.

Seven & i shares fluctuated before closing 1.43% lower at 2,133.5 yen ($14.99) on Friday, slightly above the $14.86 per share proposal. Before Couche-Tard’s August 19 announcement, the stock traded at 1,761 yen ($12.29).

Couche-Tard shares fell 8% after its Seven & i proposal was revealed.

The Japanese company said it would still doubt a takeover if Couche-Tard increased the offer value “very significantly”.

“Your proposal does not adequately acknowledge the multiple and significant challenges such a transaction would face from U.S. competition law enforcement agencies in the current regulatory environment and provides no certainty to closing,” Dacus wrote.

Opening salvo
According to LSEG data, Couche-Tard’s $38.5 billion bid is the largest all-cash offer since Elon Musk bought Twitter for $40.2 billion in 2022. Mars Inc. offered $35.2 billion for Kellanova last month.

Independent Smartkarma analyst Travis Lundy said Couche-Tard could improve its proposal.

“It was an opening salvo,” he said. “Everyone knows it wasn’t their last and best offer and wasn’t all-encompassing.”

Morningstar’s fair-value estimate for Seven & I was 2,300 yen per share on Friday, above Couche-Tard’s offer.

“I assume this deal is likely to end here,” said LightStream Research analyst Oshadhi Kumarasiri. “While Couche-Tard may come back with a higher offer, I doubt they will ever meet a fair price for Seven & I.”

Seven & i has more sales, stores, and employees than Couche-Tard, but its shares have underperformed for years, prompting concern from investors like ValueAct Capital about management and asset structure.

Friday’s ValueAct comment was delayed.

Global reach
Despite the rejection, Couche-Tard’s bid is the latest example of Western investors’ growing interest in Japanese companies due to their governance efforts.

The 2018 $18 billion Bain-led buyout of Toshiba’s memory chip business would be dwarfed by a Seven & i takeover.

Couche-Tard, worth $52 billion, could expand globally and improve economies of scale with the deal.

Analysts said it would likely face regulatory scrutiny in the U.S., where Kroger’s $25 billion merger with Albertsons was halted in 2022 due to an antitrust lawsuit.

Seven and I reject Couche-Tard’s $38.5B takeover bid

By b0oua

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