A 7-ELEVEN store in Tokyo, Japan, on Oct. 24.Todd Korol/The Globe and Mail
Everyone seems to know Alimentation Couche-Tard Inc.’s ATD-T audacious bid to acquire rival 7-Eleven’s Japanese parent is doomed to fail, outside a handful of executives at the Montreal-based convenience store chain.
In the wake of weaker-than-expected financial results from Couche-Tard on Monday, along with concerns over the leadership of newly named chief executive officer Alex Miller, losing out on a debt-fuelled, US$47-billion acquisition of Tokyo-based Seven & i Holdings Co. is likely to be a win for investors in the Canadian retailer.
In recent weeks, Seven & i’s founders – the Ito family – moved forward with plans to take the 85,000-store company private for a reported US$58.7-billion, a price Couche-Tard would be hard pressed to match.
Japan Inc. seems to support the concept, with the country’s major banks in talks to finance the buyout. While doors are open for the Ito clan, who own 8.2 per cent of the company, Couche-Tard executives have struggled to engage with the Seven & i board.
On Monday, Mr. Miller made it clear he’s still hanging around the hoop, hoping for a chance to score. In a conference call, he said: “We will be persistent and continue our friendly approach to creating what we see as the most compelling outcome for all shareholders.”
The brave talk came as Couche-Tard’s second-quarter results fell short of analysts’ expectations, owing in part to weak consumer spending from low-income customers. Couche-Tard’s adjusted net profit fell 11 per cent compared with the same period last year, to $705-million. That’s before any of U.S. president-elect Donald Trump’s proposed tariffs boost prices of U.S. convenience store staples such as gas, beer and cigarettes.
Historically, Couche-Tard’s share price outperformed peers’, in part because of 75-year-old founder and executive chair Alain Bouchard’s proven ability to acquire convenience stores on the cheap and walk away from overpriced acquisitions. But over the past 12 months, Couche-Tard has lost some of its lustre. The retailer’s stock price rose 5.3 per cent, while shares in U.S. rival Casey’s General Stores Inc. soared 51 per cent in the same period.
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Missing out on Seven & i would boost Couche-Tard’s stock price by eliminating the uncertainties surrounding the takeover, according to industry experts. In a report on Tuesday, analyst Irene Nattel at RBC Capital Markets listed “catalysts” that would improve investor sentiment on the retailer, such as rising consumer spending. “Evolution of the Seven & i file is another likely catalyst as a transaction is increasingly unlikely, in our view,” she said.
Walking away from Seven & i would also give Mr. Miller more time to learn the fine art of running and integrating convenience stores. He only became CEO in September, just a month after the company announced its bid.
The 52-year-old spent his first seven years at Couche Tard on the fuel side of the business after joining from oil and gas company BP PLC in 2012. In contrast, predecessor Brian Hannasch spent the bulk of his career running retail chains before being named Couche-Tard’s CEO in 2014.
In a recent conference for institutional investors, former Couche-Tard vice-president David Morgan highlighted Mr. Miller’s lack of credibility with the global management team as an issue as the company pursues one of the largest takeovers ever attempted by a domestic company.
A 30-year executive in Couche-Tard’s Circle K stores, Mr. Morgan said Mr. Hannasch “just had a knack in a way of managing the processes that just made people feel comfortable and made people buy in.”
“I’m just not sure how the team will rally around Alex,” said Mr. Morgan, who left Circle K in 2022. He said swapping CEOs in the midst of the bid for Seven & i left “me, personally, a little concerned about the bigger picture and the transition.”
As part of the bid for Seven & i, Mr. Hannasch has remained with Couche-Tard as an adviser.
If Couche-Tard does win Seven & i, at a reasonable price, Mr. Morgan and every analyst who follows the company say the executive team has an opportunity to combine the best of both chains’ operations and cultures into a leading global retailer, while squeezing out billions in cost savings.
However, with the Ito family determined to keep control of 7-Eleven, the consolation prize at Couche-Tard is a company with far less debt, at a time when the outlook for retailers is cloudy. Mr. Miller stands to win from losing this deal.