Couche-Tard offer | The 7-Eleven takeover takes a new turn

The attempted acquisition of the operator of 7-Eleven convenience stores by Couche-Tard is attracting the attention of investors and fans of financial intrigue. The issue took a new turn Thursday with the announcement of a reorganization by the management of Seven & i, the company targeted by the Quebec company.

What exactly did Seven & i announce?

The organizational structure will be reorganized so that the 7-Eleven convenience store chain is isolated from the other activities of the Japanese group. A new entity is created to bring together the activities of food supermarkets, specialized stores and other activities not linked to the operation of its convenience stores with a view to a possible listing on the stock exchange of this unit.

Why this announcement?

“Seven & i is trying to buy time and demonstrate that the value of the company should be higher than what Couche-Tard is willing to pay. It’s fair game on the part of Seven & i,” comments portfolio manager Nicolas Chevalier, of the Pembroke firm.

Is this negative or positive for Couche-Tard?

The spin-off concerns the portion of assets that Couche-Tard did not really want to hold, so all the better if Seven & i is split in two, says portfolio manager Philippe Côté, of the Eterna firm. It also makes things simpler on a regulatory level for Couche-Tard, he adds. It is nevertheless negative in the short term for Couche-Tard, according to him, but once the spin-off is completed in 2025, Couche-Tard’s task will be easier, because the mouthful to swallow will be smaller with only convenience stores to buy.

So Couche-Tard had a problem?

One way of looking at the situation is to say that Couche-Tard has indeed targeted Seven & i in the sense that there is possibly an opportunity to generate a return by spinning off certain activities deemed non-essential, because the market does not seem to correctly assess all of them. the assets of the Japanese group. The leaders of Couche-Tard perhaps also saw the possibility of spinning off certain assets at an attractive price, says Philippe Côté.

What will Couche-Tard do now?

If Couche-Tard fails to purchase Seven & i as a whole, the Laval company could come back with an offer only for 7-Eleven convenience stores once the spin-off of the group’s other activities is completed. “Everything will depend on the price that the market will then grant to the entity bringing together the convenience stores. The valuation multiple awarded could be higher and maybe the math won’t work anymore. It will then be up to Couche-Tard to determine whether an offer is worth submitting,” says Philippe Côté. Perhaps we will also learn that Couche-Tard is simply withdrawing from the case. Making a hostile offer appears unlikely, as this avenue could alienate Japanese regulatory authorities.

Is the pressure on Couche-Tard or on Seven & i?

“The board of directors of Seven has a lot of pressure,” says Nicolas Chevalier. Restructuring requests had been made for some time by shareholders and little had been put forward until Couche-Tard made its offer in August, he said. Now that it appears that Couche-Tard has submitted an enhanced offer to US$18.19 per share, that puts a lot of pressure on the board to create wealth. If the council refuses Couche-Tard’s advances, it will have to take measures to create wealth. The value generated by the reorganization proposed Thursday remains uncertain. »

What about the improved offer sent by Couche-Tard?

Seven & i confirmed mid-week that it had received a revised offer from Couche-Tard. It seems that Couche-Tard has improved its offer in the hope of starting discussions. Seven & i said last month that before entering into discussions, Couche-Tard must present an offer recognizing the intrinsic value of the organization and addressing its concerns. It is impossible to know whether the offer of US$18.19 per share meets these criteria. “It’s up to Seven & i to say if it’s enough to discuss,” said Nicolas Chevalier. It is by discussing that Couche-Tard will be able to have a better idea of ​​the value of the company. Couche-Tard estimated potential synergies with available public information. Discussions would give a better idea of ​​the price they might ultimately be willing to pay. »

And what does the market think?

The market seems to have little faith in an acquisition by Couche-Tard in the current form of Seven & i. Seven & i’s stock is trading at around US$15.60 while Couche-Tard’s revised offer as reported by Bloomberg stands at US$18.19 per share (C$64 billion). This price represents a premium of more than 50% to Seven & i’s share price in early August before the initial offer was revealed. “It’s a huge bonus,” said Nicolas Chevalier. Seven & i will have to create a lot of wealth to reach the value of US$18.19 per share proposed by Couche-Tard. Because if Couche-Tard withdraws – and Couche-Tard is disciplined enough to know how to withdraw when the price to pay becomes too high – Seven & i’s stock risks returning to US$12 or US$13. Will the measures announced by Seven & i on Thursday bring value of $18 or more to shareholders? asks this expert. This is the bet that the board of directors of Seven & i is preparing to make. »