People shop at a 7-Eleven convenience store in New York, on March 19, 2024.Ted Shaffrey/The Associated Press
Japan’s Seven & i Holdings Co. Ltd. SVNDY says Canada’s Alimentation Couche-Tard Inc. ATD-T is downplaying the antitrust risks of a potential merger of the two retail giants, vowing it won’t be drawn into “limbo for multiple years” as regulators decide its fate.
The Tokyo-based company, owner of the global 7-Eleven convenience store chain, released two documents late Monday that aimed to set the record straight about its dealings so far with Couche-Tard, which is based in Laval, Que. In them, Seven & i says its directors have always been open to a merger or go-private transaction, but only if there’s a high certainty that a deal will close.
“Couche-Tard is understating the risk here” in its effort to buy Seven & i, one of the documents says. “Resolving antitrust matters is not nearly as simple as selling a few stores – the divestiture package required for this transaction to even have a chance would be unprecedented in size, complexity and scale.”
The Seven & i board refuses to “blindly enter into a transaction with no clear path to closing that could leave the company in a value-destructive limbo for multiple years,” the company said, throwing cold water on the notion that Couche-Tard could easily win U.S. regulatory approval for a Seven & i takeover.
“This is a vastly different transaction than any mergers and acquisitions Couche-Tard has previously undertaken,” Seven & i says, adding that the Canadian company’s previous deals have been significantly smaller and primarily focused on regional or more marginal transactions than the transformational cross-border acquisition this one would be.
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Seven & i published the documents in response to what it called “misinformation” about the way it has been engaging with Couche-Tard, which is trying to take over the Japanese retailer with a current offer worth about US$50-billion. It’s also aiming to dispel the belief among some investors that it’s shutting the door to its suitor, confirming, for example, that the two sides met face to face on Jan. 11.
But how Seven & i’s public counterpunch will play with Couche-Tard and how it will affect the relationship between the two companies remains to be seen. In the documents, Seven & i is critical of the way Couche-Tard has handled itself. And it challenges the Canadian company’s stated frustration with the slow pace of engagement, suggesting Couche-Tard is to blame.
Seven & i says that, in October, it proactively shared a draft non-disclosure agreement and joint defence agreement (to address antitrust challenges) with Couche-Tard in order to advance talks. It says Couche-Tard responded by deleting “many provisions” in the draft agreements that would be “customary for a friendly deal,” including language on a standstill clause.
A standstill clause would restrict Couche-Tard from taking certain actions while the parties negotiate a potential deal, such as purchasing Seven & i shares or other things that could lead to a hostile takeover.
A Couche-Tard spokesman said Tuesday the company had no comment on Seven & i’s latest publications.
“We have reiterated several times over the past few months that we intend to be friendly and persistent in pursuing a transaction,” Couche-Tard chief executive officer Alex Miller told analysts on the company’s third-quarter earnings call last Wednesday. “We look forward to fulsome engagement with Seven & i so that we can reach definitive terms and move forward.”
Couche-Tard made an initial, unsolicited bid for Seven & i on July 25 of last year worth US$14.86 per share, according to Seven & i’s timeline of events. The Japanese company claims Couche-Tard “repeatedly refused to constructively address the real and relevant regulatory hurdles” until February of this year.
The two companies are now working together with investment bankers on soliciting buyers for stores they may have to sell if they agree to a merger.
Merging 7-Eleven stores with Couche-Tard’s Circle K outlets would see the combined company control more than 100,000 stores globally and roughly 20,000 in the United States, more than seven times the number of its nearest competitor in the U.S., Casey’s. The U.S. Federal Trade Commission (FTC) would likely require the sale of about 2,000 stores to allow a deal, analysts have estimated.
Couche-Tard executives have said there is a “path to regulatory approval” in the U.S., where the antitrust issues are expected to be toughest. But it’s far from a slam dunk, given recent regulatory scrutiny in that country, Seven & i says.
The recent failure of Kroger Co.‘s US$24.6-billion proposal to take over grocery rival Albertsons provides ample evidence of that, according to Seven & i. The deal was blocked by the FTC and litigated in court, with the judge agreeing with the regulator that the merger would be anti-competitive. The two companies are now accusing each other of bad faith in fallout legal action.
“Seven & i’s approach to insist on determining if there is a clear path to certainty of closing the transaction before there is a signed definitive agreement is fully consistent with the risks inherent in a potential combination” of the two companies, Seven & i says in its documents. “No shareholder of Seven & i or Couche-Tard should want to repeat the disastrous story of Kroger/Albertsons.”