(Bloomberg) -- Quebec-based convenience story operator Alimentation Couche-Tard Inc.’s bid for its global rival Seven & i Holdings will take a great deal of financing gymnastics, including massive cost-cutting, a large store of equity and a potential US listing to get the transaction past the finish line, analysts say.
Couche-Tard would need to raise between $12 billion and $18 billion of equity to keep leverage down and cover the transaction price, which hasn’t yet been announced, TD Cowen analyst Michael Van Aelst wrote in a note to clients Monday. They will also need to navigate the synergies, which could add over $2 billion in Ebitda within three years of the deal’s closing, according to Cowen’s calculations.
But if the Circle K operator can pull it off, there’s a potential 30% in upside to its earnings per share, Van Aelst said.
A portion of the deal is likely to come through equity financing, which could lead the company to pursue a US listing, according to Raymond James Financial Inc. analyst Bobby Griffin.
“Lastly, while there are still a lot of unknowns and questions, our initial take on this potential deal is favorable (early investor feedback has been favorable as well),” Griffin said in the Monday note.
Seven & i Holdings has over 85,000 locations across 18 countries, including the US, Japan and Canada.
To be sure, there are many uncertainties about the transaction, including questions about the offer price, deal structure and regulatory hurdles, said Chris Li, the analyst covering Couche-Tard for the Federation des Caisses Desjardins du Quebec. Markets are pricing in a lower probability of the deal being a success, as seen in Couche-Tard’s “muted share price reaction,” with the stock slipping over 2% on Monday to close at C$81.77 after the bid was announced, Li noted.
Even if all of these hurdles were cleared, analysts estimate that the deal could take around two years to complete.
Couche-Tard has failed in some major takeover attempts, like the Carrefour SA bid that the French government blocked in 2021, National Bank Financial Markets analyst Vishal Shreedhar wrote in a note to clients Tuesday. However it also has an established record of getting deals done, with 16,700 stores across 31 countries and territories — most of which have been brought into the fold through mergers.
“We have a preference for smaller deals in familiar/developed markets coupled with ongoing focus on organic growth, and capital return,” Shreedhar wrote. “This is a big bet in many unfamiliar markets; that said, history suggests ATD could execute well.”
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