Takeover bid for Japan's 7-Eleven owner from Canadian chain

Shares in Japan’s Seven & i Holdings, which operates 7-Eleven convenience stores worldwide, have risen after it said it was “open to discussions” with Canada’s Alimentation Couche-Tard if the latter improves its $39 billion takeover bid, say P.R. Venkat and Megumi Fujikawa in The Wall Street Journal. Seven & i rejected Couche-Tard’s previous offer last week on the grounds that its proposal “significantly underestimated the company’s value and potential”. This has led to speculation that Couche-Tard will raise its offer, although there may be antitrust concerns over any deal as both firms have large networks in the US. 

Competition will certainly be a “key consideration” in any deal, says Lex in the Financial Times. A merger “would create a global convenience-store leader with more than 100,000 stores”. US regulators will definitely want to become involved. Given 7-Eleven’s operations in the US, both in terms of its own stores and the franchises of other brands that it runs, the combined entity would be America’s “biggest convenience-store operator”. What’s more, because the deal would be the largest foreign takeover of a Japanese firm, Japanese authorities will also be under pressure to scrutinise it. 

Is a takeover likely? 

For a company such as Seven & i to consider selling itself “would have been unthinkable a little over a decade ago”, says The Economist. Japan’s listed firms “have long been known for their hostility to takeovers and their lack of responsiveness to shareholders’ demands”. However, this is “slowly changing” thanks to reforms to corporate governance. Combined with the decline in corporate cross-holdings, which have traditionally been used to fend off hostile takeovers, this means that listed Japanese firms “can no longer simply dismiss takeover attempts out of hand”. 

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Opponents of the deal, meanwhile, have a point when they argue that 7-Eleven has “more value than simply its worth to shareholders”, says Bloomberg’s Gearoid Reidy. While not quite a “critical piece of national infrastructure”, 7-Eleven stores provide a “vital local hub in Japanese communities, particularly in rural areas”, with the chain’s “nationwide reach and economy of scale” making its “tasty, nutritious food options available to otherwise isolated elderly people”. Japan’s “often-undervalued brands” should keep such factors in mind when deciding whether to sell up.

In any case, for this deal to present a “real test” of Japan’s receptiveness to foreign acquisitions, Alimentation Couche-Tard “needs to work a lot harder” to come up with a more attractive offer, says Anshuman Daga on Breakingviews. The offer is not only below the level that Seven & i’s share price was trading at as recently as February, but also far short of the ¥3,500 per share break-up value the Japanese chain could command. Any new proposal will also need to include a “large break fee” to compensate for the “extended deal timeline” necessary to allow for a proper regulatory investigation.

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