(Bloomberg) -- Circle K operator Alimentation Couche-Tard Inc. is likely to face a tough US antitrust review if it moves forward with its $47.2 billion bid to buy 7-Eleven owner Seven & i Holdings Co., according to a Bloomberg News analysis.
The companies directly compete in thousands of locations across the US with more than 45% of Circle Ks within two miles of a 7-Eleven or related store, according to data compiled by Bloomberg.
Jennifer Rie, Bloomberg Industries antitrust analyst, said that the “chances are very high” the US Federal Trade Commission may find the concentration levels problematic.
The data “suggests that there will be a lot of overlaps that have to be scrutinized by the FTC,” she said. “There will probably be divestitures needed.”
Canada’s Couche-Tard – which operates more than 6,700 Circle K stores in the US – is pursuing a takeover of the Japanese owner of 7-Eleven and Speedway, which has about 13,300 US locations. The deal would combine the No. 1 and No. 2 convenience store chains in the US, according to industry publication CSP, which publishes an annual ranking.
Alain Bouchard, Couche-Tard’s founder and executive chairman, said the company has been working on solutions to any antitrust problems.
“We have read, obviously, comments that have been made about a possible roadblock we would have in North America with the Federal Trade Commission in the US, and we have an answer to that,” Bouchard said in an interview with Bloomberg News in Japan. “With the 74 acquisitions we’ve made, we’ve faced a lot of discussions with the FTC and we’ve always been able to have a great solution.”
Seven & i declined to comment.
After its initial overture was rejected, Couche-Tard boosted its offer, proposing $18.19 per share or ¥7 trillion ($47.2 billion) last month, Bloomberg reported. A deal between the two companies would create a global convenience store behemoth with more than 100,000 stores worldwide and 20,000 in the US.
There were 8,077 instances where one or more Circle-K stores are located within two miles of at least one 7-Eleven or related store, according to Bloomberg’s analysis. To resolve those overlaps, the combined company might need to divest as many as 2,463 stores, which represent 12.31% of the outlets that would be owned by the combined company.
The FTC, led by Chair Lina Khan, has taken a dim view of major mergers. The agency is suing to block Kroger Co. from acquiring Albertsons Cos. in what would be the largest-ever grocery deal and has closely scrutinized potential deals in both food and oil markets amid concerns about ongoing inflation.
In merger reviews, antitrust enforcers often look at companies’ store locations assuming that outlets close together compete, but that a merged firm might close one, reducing consumer choice. The agencies often seek to have the companies sell off locations or, if too many stores would need to be divested, move to block a deal altogether.
California would be the most impacted by a potential deal, with 927 7-Eleven or related stores near Circle-K outlets, Bloomberg’s analysis found. In Texas and Florida, more than 500 Circle-K locations would be impacted.
Both Couche-Tard and 7-Eleven have been involved in previous mergers where the FTC required divestitures largely focused on the retail fuel markets, Rie said. In those deals, the FTC looked at stores within a three-mile radius. When 7-Eleven acquired Sunoco’s retail outlets in 2018 and later Speedway in 2021, the agency required the companies to sell off 76 and nearly 300 stores respectively to resolve concerns about the impact on retail gas networks.
Likewise, Couche-Tard’s 2018 purchase of Holiday Companies required divestitures. Both Couche-Tard and 7-Eleven later faced penalties from the FTC for failing to fully comply with the terms of those settlements – an indication the agency has continued to monitor both firms even after those deals.
--With assistance from Mathieu Dion, Koh Yoshida and Reed Stevenson.
(Updates to add comments from Couche-Tard’s chairman, beginning in the sixth paragraph.)
©2024 Bloomberg L.P.