Alimentation Couche-Tard Inc. founder Alain Bouchard and CEO Alex Miller at a news conference on their bid for 7-Eleven convenience store operator Seven & i Holdings in Tokyo on March 13.Kim Kyung-Hoon/Reuters
Alimentation Couche-Tard Inc. ATD-T co-founder Richard Fortin once compared the convenience store giant’s owl mascot to the corporation’s own hunting instincts.
“We perched on our branch, looked at the numbers, and when we spotted prey that seemed weak enough, we swooped down on it,” the director said of the Canadian company’s well-documented appetite for acquisitions.
Couche-Tard’s latest mark is proving an elusive target, however. Six months after making a surprise bid for Seven & i Holdings Co. Ltd., the Japanese owner of the 7-Eleven chain, a deal that would be the largest foreign takeover in that country’s history, Couche-Tard is no closer to its goal, and investors are asking whether the owl needs to try something new – or perhaps give up the chase.
On Thursday, Mr. Fortin’s co-founder and current Couche-Tard chairman Alain Bouchard took the fight directly to Japan, holding a news conference in Tokyo alongside other top executives as part of a publicity blitz to win over a suspicious Japanese public and put Seven & i’s feet to the fire.
Speaking in Tokyo, Mr. Bouchard said he had been “disappointed” by Seven & i’s frostiness to Couche-Tard’s offer, now worth about US$50-billion, as well as its preoccupation with potential U.S. antitrust issues, saying there was a “clear path to regulatory approval” in what would be the combined company’s biggest market.
Seven & i had called for Couche-Tard to commit to selling off its U.S. assets, given that combining 7-Eleven stores with Couche-Tard’s Circle K stores would see the merged company controlling about 20,000 outlets, more than 7.6 times the number of nearest competitor Casey’s.
“We may be able to enhance our proposal through [due] diligence as we form a greater understanding of the opportunity,” Mr. Bouchard said. “Unfortunately, we haven’t had access to anything.”
He added that there was “a unique strategic fit” for the Japanese and Canadian companies and said Couche-Tard was determined to keep negotiations “friendly.” A new Japanese- and English-language website launched by Couche-Tard to promote the deal says a “hostile takeover is not under consideration.”
“We remain confident that our proposal is the most attractive for Seven & i, its customers, franchisees, and the shareholders of both companies, and so we will continue our friendly approach with Seven & i,” the website adds.
In a video, Couche-Tard CEO Alex Miller expressed admiration for 7-Eleven’s operations in Japan – where convenience stores play a far larger role in society than in many other countries – and would seek to learn from Seven & i rather than apply a North American model to Japanese stores.
“I’ve seen it firsthand being in Japan,” Mr. Miller said, adding that the company would put “local leadership” in place to ensure the stores continue “the role they play in those communities.”
The new website goes further, stating clearly: “We have no intention to change 7-Eleven Japan’s operations.”
Couche-Tard has so far done the right things with its approach, said Lorraine Tan, an analyst at Morningstar in Singapore. She said Seven & i’s hesitation stems from the founding Ito family’s reluctance to sell, as well as the simple fear that things would change under new ownership – a fear felt chiefly by store franchisees and operators.
“It’s such a popular convenience store in Japan,” Ms. Tan said in an interview Wednesday. “I think there is obviously pushback that is fuelling this delay by the board because of those sensitivities as well.”
Whether this week’s publicity push will change minds at Seven & i remains to be seen, however. So far, the company has sought shelter anywhere it can find it. But efforts to rally shareholders have largely fallen flat, strengthening Couche-Tard’s argument in the face of a stagnant stock price and investor anger.
The Japanese company waited weeks for a management buyout bid led by the Ito family to materialize, only to see it peter out. It also announced new strategic measures in a bid to carve out shareholder value on its own, including listing a portion of its U.S. convenience store business to fund a share buyback. Those, too, are being met with some skepticism.
Seven & I’s stock is still trading roughly 20 per cent below Couche-Tard’s offer.
“Seven & i is looking for reasons for saying no, but doesn’t have the firepower” to reject Couche-Tard outright because there are no strong alternatives to a takeover or arguments against one, said Louis Hébert, a specialist in mergers and acquisitions at Montreal’s HEC business school.
The saga has proven that breaking Japan out of its corporate insularity will be a slow-go process because the country is “neither fluid nor open” on principle when it comes to foreign takeovers, Mr. Hébert said.
For its part, Seven & i is coming under increasing pressure to enter meaningful talks with Couche-Tard. A substantive proportion of shareholders want the companies to engage, knowing that a binding bid by the Canadians could deliver more immediate value than Seven & i’s internal strategic moves, which could take years and might be unsuccessful.
This week, two independent directors of Seven & i resigned “at the request of the persons concerned,” the company said Wednesday, something activist investor Artisan Partners blasted as a “sign of dysfunction” at the Japanese conglomerate.
“We are aware of only two publicly listed companies around the globe in recent years where decision making at the board of directors has resulted in the resignation of multiple directors,” Artisan said in a statement. “One of those companies is Seven & i Holdings Inc.”
It called on other shareholders “to hold leadership accountable,” criticizing the company’s executives for “years of poor operating performance, terrible capital allocation, conflicts of interest, management entrenchment and inadequate consideration of a potentially value-creating acquisition.”
In its statement, Artisan pointed to new Japanese corporate governance standards that have sought to make boards more independent and create space for the type of mergers that domestic companies have long resisted.
“Not entertaining this offer, I think, is also embarrassing to the Japanese” in the context of those reforms, Ms. Tan said. “They do need to let this play out.”
Couche-Tard is clearly not ready to walk away despite the “apparent preference of Seven & i to go it alone,” said RBC Capital Markets analyst Irene Nattel. But at some point, the Canadian company will need to make a decision on whether to stop the effort and resume share buybacks while pursuing other mergers and acquisitions activity, she said.
“We have reiterated several times over the past few months that we intend to be friendly and persistent in pursuing a transaction, which we believe is in the best interest of all stakeholders,” Couche-Tard said in a lengthy statement Monday. “We have done that in the face of significant frustration and distraction.”
With reports from Reuters