Couche-Tard abandons $46 billion bid to acquire Seven & I

Japan Times

3 days ago

Canada's Alimentation Couche-Tard has abandoned its ¥6.77 trillion ($45.8 billion) bid to buy Seven & I Holdings, saying the Japanese operator of 7-Eleven convenience stores had refused to engage meaningfully during the almost yearlong pursuit.
"There has been no sincere or constructive engagement from 7&i that would facilitate the advancement of any proposal, contrary to comments made publicly by 7&i representatives,' Couche-Tard said in a letter to Seven & I's board, released late Wednesday. "Rather, you have engaged in a calculated campaign of obfuscation and delay, to the great detriment of 7&i and its shareholders.'
Seven & I's stock, which is up more than 25% since Couche-Tard's interest became public 11 months ago, is likely to decline due to the withdrawn proposal. The stock was suspended from trading early Thursday in Tokyo.
The Japanese retailer has sought to make a case for remaining independent and made sweeping changes, appointing Stephen Dacus as CEO, selling its superstore business for $5.4 billion, launching a share buyback program worth ¥2 trillion and listing its U.S. business.
In a statement, Seven & I said it regretted Couche-Tard's decision to walk away, but said many of the reasons given were inaccurate and unacceptable. The company said it will continue to implement its strategy to create value for shareholders.
"The moat of Japanese protectionism proved too much for Couche-Tard to cross,' Andrew Jackson, head of Japan equity strategy at Ortus Advisors, wrote in a note. "It was always highly unlikely that this was going to be successful given Seven & I's positioning as one of Japan's most successful global companies and the fast closing of the ranks.'
"As we have expressed many times, we do believe that fully combining our two companies is the most straightforward and effective way to maximize value to all stakeholders,' Couche-Tard said in the letter signed by Chairman Alain Bouchard and CEO Alex Miller. "We believe this combination has the ability to enhance that path. However, we are not able to effectively pursue this combination without deeper and genuine further engagement from 7&i leadership and the special committee.'
Before the proposal to buy Seven & I became public, an attempt to acquire such a well-known Japanese business at such scale was seen as audacious and unlikely, given the protectionist tendencies of the government and corporate boards prioritizing stability over shareholder value. That view may remain in place for a while, despite changes to corporate guidelines aimed at injecting more vigor into corporate Japan through improved governance and protections for investors.
Couche-Tard, which operates Circle K stores globally, disclosed that it has proposed alternate arrangements for a deal, including buying Seven & I's international business and taking a minority stake in the Japanese business.
Bouchard, who co-founded Couche-Tard, said in March that there was a possibility of "enhancing' the buyout proposal with better access to financial information. Since then, the two parties signed a non-disclosure agreement to share information, but Couche-Tard said in the letter that the level of engagement wasn't enough.
Most of the information shared by Seven & I was minimal or already publicly available, and meetings with management were superficial, or tightly scripted, according to Couche-Tard. "None of our critical questions were answered,' the company said.
In one meeting in Dallas, Couche-Tard said a Seven & I executive who attempted to "thoughtfully address' a question related to international licensees was interrupted and rebuked by Dacus, who pointed to his head as if to remind his colleague to "think.'
Seven & I has cited concerns over potential pushback from U.S. antitrust regulators over any deal to combine with Couche-Tard. In order to address this risk, the two sides agreed earlier this year to seek potential buyers for about 2,000 North American convenience stores.
Although several parties expressed interest in acquiring the stores, Seven & I didn't share "required information with potential buyers, which is inconsistent with our collective objectives and does not reflect a constructive intent,' Couche-Tard said.
There will be greater pressure on Seven & I's management to deliver after Couche-Tard's withdrawal, according to Bloomberg Intelligence analyst Lea El-Hage.
"Its August strategy update will be key to demonstrating its standalone plan can generate more value than the rejected acquisition,' El-Hage wrote in a note, referring to a management update planned by Seven & I next month.