The parent company of 7-Eleven convenience stores has officially informed Alimentation Couche-Tard that its takeover bid, now valued at CAD 54 billion, has been rejected.
Japanese group Seven & i believes that the Laval company’s proposal comes at an opportunistic time and that it significantly underestimates the intrinsic value of the company and the possibilities of unlocking this value.
While Seven & i demonstrates an openness to consider any proposal that is in the best interests of its shareholders and other stakeholders, management states that the proposal presented by Couche-Tard does not constitute a basis for engaging in substantive discussions with a view to a potential transaction.
The proposal fails to adequately recognize the multiple and significant challenges that such a transaction would face from U.S. competition enforcement agencies in the current regulatory environment.
Stephen Dacus, chairman of the special committee set up last month by Seven & i to study Couche-Tard’s offer
Stephen Dacus’s comments are taken from a letter sent to Couche-Tard’s founder and executive chairman, Alain Bouchard. The letter was made public Thursday evening by Seven & i.
The letter reveals in particular that Couche-Tard has offered to acquire all of the outstanding shares of Seven & i for a sum of US$14.86 per share in cash, or approximately CAD$54 billion in total.
The leading convenience store operator in the United States with an estimated market share of nearly 10%, Seven & i indicated on August 19 that it had received a proposal from Couche-Tard to acquire all of its outstanding shares.
Seven & i’s board believes that even if Couche-Tard were able to significantly improve the value of its proposal, it does not sufficiently take into account potential competition issues in the United States and does not offer any certainty as to the outcome of the transaction.
PHOTO RYAN REMIORZ, CANADIAN PRESS ARCHIVES
Couche-Tard Founder and Executive Chairman Alain Bouchard
“Beyond your simple assertion that a combination would not have an unfair impact on the competitive landscape and that you would consider potential divestitures, you have provided no indication of the level of divestitures that would be necessary or the manner in which they would be carried out,” reads the letter sent to Alain Bouchard.
“Nor does your proposal indicate, for example, how long you believe it will take to clear regulatory hurdles, or whether you would be prepared to take all necessary steps to ensure the success of the transaction,” it added.
Stephen Dacus also points out that while Couche-Tard recognizes the crucial role that Seven & i plays in daily life in Japan in food and other sectors, “these are clearly topics that would require further discussion if we were to get to that point,” he says.
It was not immediately possible to obtain a reaction from Couche-Tard to Seven & i’s letter.
A strategic plan called into question
During a conference call with analysts Thursday morning, Couche-Tard’s chief operating officer and CEO designate, Alex Miller, said he has deep respect for Seven & i.
Specifically, Brian Hannasch’s successor said he saw in Seven & i an opportunity to “grow together”, improve the offering for customers and deliver a compelling result for shareholders, employees and key groups of both companies.
“We are confident in our ability to finance and complete this merger and we look forward to discussing with Seven & i in a constructive manner,” he added before commenting on the financial performance at the start of the financial year revealed at the end of the day on Wednesday.
Couche-Tard’s profits declined in May, June and July. Management argues that the caution of American consumers in the current economic context, particularly those with low incomes, may help explain the decline in profitability and the decline in comparable store merchandise sales in the United States.
PHOTO RYAN REMIORZ, CANADIAN PRESS ARCHIVES
Couche-Tard’s profits declined during the months of May, June and July.
National Bank Financial analyst Vishal Shreedhar believes that continued weakness in merchandise sales will lead some observers to increasingly question the ambitious five-year “10 to Win” strategic plan presented by Couche-Tard last October.
“This may also explain why Couche-Tard is aggressively pursuing acquisitions, contrary to its announced strategy. Acquisitions were presented as a minority part of the growth plan,” he emphasizes in a note sent to his clients.
Couche-Tard revealed last fall that it was aiming to reach US$10 billion in profits before taxes, interest and depreciation by fiscal 2028 by leveraging its “10 to Win” strategic plan.
“We didn’t expect it to be a great quarter, and it wasn’t,” commented TD analyst Michael Van Aelst.
“Investors are more focused on the takeover bid for Seven & i and the potential for a share issue to finance the transaction,” he adds.