The Japanese parent company of 7-Eleven yesterday (Sept. 6) shot down an acquisition proposal from a Canadian rival that would have created the largest-ever foreign buyout of a Japanese company. The offer from Alimentation Couche-Tard, the Quebec-based owner of the convenience store chain Circle K, “grossly undervalues” 7-Eleven’s worth and is “opportunistically timed,” said the Tokyo-based Seven & I Holdings in a filing with the Tokyo Stock Exchange.
Couche-Tard owns more than 16,000 stores around the globe and has long had its eye on the 7-Eleven operator, with Couche-Tard’s founder Alain Bouchard having previously attempted to acquire Seven & I holdings nearly two decades ago. The Japanese retailer, meanwhile, operates some 84,000 locations in total and counts the family of late billionaire businessman Masatoshi Ito as its second largest shareholder. “We have a deep respect for Seven & I and the business they have built in Japan and around the world, including their great operating model, franchisee network and brand,” said Alex Miller, CEO of Couche-Tard, during the company’s first-quarter earnings call on Sept. 5.
The Canadian company offered to acquire all outstanding shares of Seven & I for $14.86 per share, which would value the Japanese company at around $38 billion, according to Seven & I. This proposal is “not in the best interest of Seven & I shareholders and other stakeholders,” said Stephen Dacus, chairman of a special committee formed by the company to review the offer, in yesterday’s filing. The 7-Eleven parent company is a “unique asset and strategically positioned within the global convenience store sector,” continued Dacus in the letter, which was addressed to Bouchard.
Why is 7-Eleven such an important asset?
Given 7-Eleven’s cultural significance in Japan, the convenience store operator’s reluctance to sell shouldn’t come as a surprise. The retailer is the site of a series of historic firsts, from pioneering a 24/7 business model in 1963 to debuting a self-serve soda foundation in 1970.
7-Eleven actually started off as an American company in the 1920s, with its inaugural location based in Dallas, Texas. It wasn’t until the 1970s that 7-Eleven made its way to Japan. But upon entering the country, the stores were a hit—especially after 7-Eleven began selling Japanese rice balls known as onigiri and introduced a faster payment system. The stores became fully Japanese-owned in 2005 and have since become a leader of the nation’s convenience store, or “konbini,” industry, which reportedly draws in $77 billion a year.
Besides undervaluing “the company’s intrinsic value and opportunities to unlock that value,” Seven & I claims Couche-Tard’s offer fails to acknowledge the antitrust challenges that could arise from a 7-Eleven acquisition. “Your proposal does not indicate, for example, the timeline you believe would be required to clear regulatory hurdles or whether you would be prepared to take all necessary action to obtain regulatory clearance, including by litigating with the government,” said Dacus. Seven & I and Couche-Tard together would oversee some 20,000 stores in the U.S., more than ten times the amount operated by Casey’s, the third largest convenience store operator in the U.S.
Despite its initial rejection of the Circle K operator’s proposal, Seven & I isn’t completely shutting down the possibility of a takeover. “We are open to engaging in sincere discussions should you put forth a proposal that fully recognizes our standalone intrinsic value and addresses our concerns regarding the certainty of closing in the current regulatory environment,” said Dacus.