A customer shops inside a 7-Eleven convenience store in central Tokyo on Sept. 9, 2024.RICHARD A. BROOKS/AFP/Getty Images
A white-knight bid for Japan’s Seven & i Holdings Co. SVNDF has collapsed after a member of its founding family told the retail giant that they failed to raise the required capital, clearing a path for Canada’s Alimentation Couche-Tard Inc. ATD-T to begin friendly talks around its own US$47-billion takeover offer.
In a statement Thursday, Seven & i said it has learned from Junro Ito, a Seven & i vice-president and director who is leading a proposed buyout of the company, that they have been “unable to secure the financing required” to submit a definitive offer for Seven & i. As a result, there is “no actionable proposal” from Mr. Ito’s group at this time, the company said.
“Seven & i remains committed to exploring all opportunities to unlock value for shareholders and continues to assess a full range of strategic alternatives, including the proposal from Alimentation Couche-Tard,” the company said. A special committee at Seven 7 & i is “engaging constructively” with the Canadian suitor to determine whether a proposal can be achieved that addresses the U.S. antitrust challenges any such transaction would face, the company said.
Mr. Ito’s father, the late Masatoshi Ito, built the retail empire that owns the 7-Eleven convenience store chain. The son was seeking to make an offer reportedly worth 9-trillion yen (roughly US$60-billion), through his family’s asset management company, Ito-Kogyo Co. Ltd.
Their effort is being billed as a management buyout to take Seven & i private. The idea would be to give its directors and executives breathing space to pursue their own strategy without pressure from public shareholders while keeping the company in Japanese hands.
It wasn’t immediately clear whether the Ito group is still trying to salvage a bid. The founding family, which holds a roughly 8-per-cent stake in the Japanese retailer, had appeared determined not to sell.
Laval, Que.-based Couche-Tard, which controls the Circle-K chain, has been biding its time to see whether there was a way to engage Seven & i in formal and friendly talks instead of going hostile. Its sweetened non-binding offer for Seven & I, made last October, is now the only bid on the table.
“Couche-Tard remains committed to reaching a mutually agreeable transaction that benefits both companies' customers, employees, franchisees and shareholders, creating a global retail champion,” the Canadian company said in a statement.
The executives’ initial visit to Japan last fall was not entirely successful after they were unable to secure a meeting with Seven & i president Ryuichi Isaka and his team. Since then, the Couche-Tard executives have made multiple visits to the country and engaged many stakeholders, the company said in the statement.
It will be difficult for Seven & i management to come up with a better alternative than the Canadian offer through internal strategic actions such as spinoff asset sales, Stifel analyst Martin Landry said in a research note. But it remains to be seen if Seven & i shareholders will be able to put enough pressure on Seven’s leadership to sit down and talk with Couche-Tard, he said.
Seven & i shares fell 11 per cent in Tokyo trading on Thursday. The company’s annual meeting is scheduled for May.
“With a management buyout off the table, the probability of Couche-Tard’s bid succeeding moves higher,” TD Cowen analyst Michael Van Aelst said in a note.
The analyst calculates that at today’s exchange rates, Couche-Tard would need to sell between US$5-billion and US$9-billion of stock to pull off a deal if its current bid is accepted. Couche-Tard’s share price has generally fallen when the odds of the company buying Seven & i increased given the perceived significant equity requirements (which would dilute existing shareholders). But a US$5-billion stock sale could be “easily absorbed,” he said.
The longer Couche-Tard’s pursuit drags out, however, the more its own investors will lose patience. To some extent, that’s already happening.
“I would like them to move on as soon as possible,” said Paul Harris, portfolio manager at Harris Douglas Asset Management in Toronto, which holds Couche-Tard shares among $175-million in assets under management. “I think this whole process has kept the stock under pressure.”
Mr. Harris said Couche-Tard’s positive track record on past acquisitions has won it the benefit of the doubt from shareholders. But given the size and complexity of a possible Seven & i takeover – the expected rewards of which have not been fully explained – that trust has its limits, he said. “You’re either going to do a deal or you’re not.”
The Ito family’s effort to take Seven & i private reflects the belief by some Japanese powerbrokers that the country’s biggest retailer should not fall into foreign control. Couche-Tard’s bid is the biggest ever from a non-Japanese company for a Japanese target.
Japan’s Economy Minister, Ryosei Akazawa, said last month that interest by a foreign buyer in taking over Seven & i raises national-security concerns. He evoked the wide role that Seven & i plays in Japanese society, including that the role their stores play in disaster-relief efforts. The comments were interpreted by some as indicating the government is cool to a foreign takeover.
Mr. Ito was working with trading and investment conglomerate Itochu on the offer and had the support of three of Japan’s largest banks, according to Japanese media reports. Itochu owns FamilyMart, Japan’s second-biggest convenience store chain behind 7-Eleven.
Seven & i controls the 7-Eleven chain’s 85,000 stores around the world as well as a series of other assets, including a bank, life insurance units and credit-card businesses. The company has suffered from underperformance for years, and investors have long complained that the board has been slow to address the challenges.
Couche-Tard executives vowed in an interview with The Globe in November to pursue Seven & i for as long as it takes. Bringing 7-Eleven into the fold would bolster the fresh food offerings at Circle-K stores and provide a significant footprint for further expansion into Asia.
“We’re not going away,” Couche-Tard chief executive officer Alex Miller said at the time. “We see tremendous value here and we are just going to continue to highlight that and to push.”