Biggest foreign takeover deal stalled in Japan, 7-Eleven rejects Canadian bid

The Japanese owner of 7-Eleven said Friday it had rejected a takeover bid from Canadian retail giant Alimentation Couche-Tard, saying the proposal “grossly undervalues” the company.

The proposed purchase of Seven & i Holdings would be the biggest ever foreign takeover of a Japanese firm, merging 7-Eleven, Circle K and other brands across Asia, America and Europe.

As the world’s biggest convenience store chain, 7-Eleven operates more than 85,000 outlets globally.

While the brand began in the United States, it has been wholly owned by Seven & i since 2005.

A letter from the Seven & i board to Alimentation Couche-Tard (ACT) said it was open to “engaging in sincere discussions should you put forth a proposal that fully recognises our standalone intrinsic value”.

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“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,” it said.

ACT operates more than 16,700 outlets in 31 countries and territories.

The takeover bid was announced in August, and on Friday Seven & i said ACT had offered $14.86 per share in cash, roughly matching its market value of $39 billion.

The board’s letter called the proposal “opportunistically timed” and said it “grossly undervalues our standalone path and the additional actionable avenues we see to realise and unlock shareholder value”.

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It also raised regulatory concerns.

“Your proposal does not adequately acknowledge the multiple and significant challenges such a transaction would face from US competition law enforcement agencies,” it said.

‘Tremendous brand power’ 

A quarter of 7-Eleven stores are found in Japan where they are a beloved institution, selling everything from concert tickets to pet food and fresh rice balls.

Seven & i’s other businesses include a major supermarket operator, restaurant chain Denny’s, and Tower Records – a once-popular US record store that went bankrupt.

The company has reportedly asked the Japanese government to designate parts of the company as “core”, which would make a takeover more difficult.

Entities rated “core” in Japan include manufacturers in the nuclear, rare earths and chip industries, as well as cybersecurity and infrastructure operators.

The Canadian firm, however, is still confident that it can have its way.

CEO Brian Hannasch told an earnings briefing in New York on Thursday that Couche-Tard could “consider a higher leverage if needed”, indicating it has the capacity to raise more funds, according to Nikkei Asia.

“We have the solid and robust balance sheet,” Nikkei quoted Hannasch as saying.

Shares in Seven & i were down 1.9 per cent in Tokyo on Friday.

One shareholder, US fund Artisan Partners Asset Management, last week urged Seven & i to hold swift negotiations with ACT “to achieve the best possible outcome for shareholders”.

“ACT is uniquely positioned to enhance SIH’s (Seven & i Holdings’) corporate value,” it said, referring to the Canadian company’s successful expansion of Circle K, which it acquired two decades ago.

It added that “7-Eleven has tremendous brand power that could be leveraged on a global basis” and that “unlike SIH, ACT’s overseas expansion track record is excellent”.