(Bloomberg) -- Alimentation Couche-Tard Inc. told Seven & i Holdings Co. that it wants to work together to agree on a “friendly” takeover, after the Japanese convenience-store operator pushed back on the Canadian company’s initial proposal.
In a sign that talks are set to intensify, Circle K owner Couche-Tard said in a statement that it remains “highly focused on consummating a transaction with 7&i that is in the best interests of all constituencies,” confirming an earlier Bloomberg News report. Seven & i followed that up with a short statement later on Monday, saying that it would be willing to talk if Couche-Tard tables a proposal that “fully recognizes Seven & i’s standalone intrinsic value.”
Apart from the question of price, both companies have also highlighted potential issues around scrutiny from anti-competition regulators that may require divestments. A potential deal would create a global convenience store behemoth with more than 100,000 stores and represent the biggest-ever foreign takeover of a Japanese company. It would also be a key test of whether the environment in Japan has become easier for mergers and acquisitions.
“Seven & i hasn’t closed the window on the takeover proposal,” said Taku Sugawara, analyst at Iwai Cosmo Securities Co., adding that the outcome may also depend on the performance of the companies and currency trends. “Developments will depend on next month’s earnings announcement and the exchange rate.”
Seven & i shares rose 2.4% on Monday, while the broader market fell, giving the company a valuation of ¥5.7 trillion ($39.9 billion). That’s slightly below Couche-Tard’s initial proposal of about $14.86 per share, and up 24% since the companies disclosed Couche-Tard’s approach last month.
“We continue to have strong conviction that a combination with 7&i has clear strategic and financial benefits for both companies’ customers, employees, franchisees and shareholders,” Couche-Tard said.
Although Seven & i, the operator of 7-Eleven shops, rejected Couche-Tard’s price as too low and fraught with regulatory risk, it made it clear that that price was the issue, not the idea of an acquisition itself. The Japanese retailer is “open to sincerely consider any proposal that is in the best interests of 7&i shareholders and other stakeholders,” it said.
Previously, an attempt at such a transaction would have been dismissed as unlikely, given the protectionist tendencies in Japan. But new takeover guidelines and improved corporate governance are creating an environment where a potentially large-scale deal could happen.
In its statement, Couche-Tard said it is “disappointed” by Seven & i’s refusal to engage in friendly discussions. “In addition to enabling Couche-Tard to find more value, engagement will also enable us to refine our regulatory proposal to sufficiently address deal certainty,” the company said.
Couche-Tard stressed that it has a “successful history and track record of acquisitions and working with US and other regulators” and that it would be willing to jointly consider any divestments that might be necessary.
“We are highly confident that we have sufficient capacity to finance the transaction in cash and that financing would not be a condition to closing a transaction,” Couche-Tard said in the statement. The Canadian company has a market value that exceeds Seven & i, at $53.7 billion.
Although Seven & i has appealed to the government for greater protection, the Foreign Exchange and Foreign Trade Act, which could give it some refuge, was designed to encourage foreign investment. It’s not clear when or whether the finance ministry will make a decision on changing the company’s business category to one that might raise the hurdle for a potential deal.
Couche-Tard said it understands the role of the 7-Eleven franchise in Japan, especially “as a part of the community lifeline and social infrastructure.” The Canadian retailer says that it also has experience in this area, staying open during disasters in order to provide essentials and help with emergency responses.
“We believe that, working together, we can successfully reach and complete a mutually agreeable transaction,” Couche-Tard said.
--With assistance from Haruka Iwai.
(Updates with Seven & i’s response on Monday.)
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