7-Eleven owner rejects Couche-Tard’s takeover proposal as too low

Seven & i Holdings Co. rejected a $39 billion takeover proposal from Alimentation Couche-Tard Inc. as too low and fraught with regulatory risk, while signaling a willingness to consider a sweetened offer.

Shares of the Japanese convenience store operator closed 1.4% lower on Friday, after swinging between gains and losses earlier in the session as investors weighed prospects for a deal. The operator of 7-Eleven shops published a letter outlining its response to Couche-Tard following a review of the proposal by a committee of independent outside directors.

“We are open to sincerely consider any proposal that is in the best interests of 7&i shareholders and other stakeholders,” committee chair Stephen Dacus wrote in the letter. “However, we will resist any proposal that deprives our shareholders of the company’s intrinsic value or that fails to specifically address very real regulatory concerns.”

Couche-Tard and Seven & i disclosed the Canadian company’s approach on Aug. 19, but had not yet given details of the potential offer. It valued Seven & i at about $14.86 per share, or a market capitalization of ¥5.55 trillion ($38.7 billion). While that represents a premium of 21% since the proposal was disclosed, it’s below a recent one-year peak seen in February.

“We do not believe, for several critical reasons, that the proposal you have put forward provides a basis for us to engage in substantive discussions regarding a potential transaction,” Dacus wrote. “Your proposal is opportunistically timed and grossly undervalues our standalone path and the additional actionable avenues we see to realize and unlock shareholder value in the near- to medium-term.”

“While none of this sounds particularly positive, 7&I is at least opening to door to further negotiations, which at the very least demands a higher bid,” said Andrew Jackson, strategist at Ortus Advisors Pte.

Alex Miller, currently Couche-Tard’s chief operating officer and soon-to-be chief executive officer, told analysts on the company’s earnings call Thursday that it wants to engage constructively with Seven & i and that it’s confident it can finance the deal.

The proceedings are being closely watched at home and abroad as a test of new government guidelines on mergers and acquisitions instructing companies to seriously consider takeover offers.

A deal between the two companies could create a global convenience store behemoth with more than 100,000 stores. That could invite scrutiny from US competition authorities. Another potential obstruction for the takeover is that the Japanese government can block the deal or ask for changes in the terms.

Previously, an attempt to acquire such a well-known and large Japanese business at such scale would have been dismissed as unlikely, given the protectionist tendencies of the government and corporate boards prioritizing stability over shareholder value. But new corporate guidelines have been issued to inject more vigor into corporate Japan through improved governance and protections for investors.

Couche-Tard’s buyout offer came as the Japanese retail conglomerate has been under pressure from activist shareholder ValueAct Capital Management LP to sharpen its focus to 7-Eleven’s operations, and pivot away from its supermarket and department store businesses. The group also pushed unsuccessfully to oust Chief Executive Officer Ryuichi Isaka.

In response, Seven & i has taken restructuring measures and initiated a buyback.