(Bloomberg) -- Japanese government approval could be a major roadblock in Alimentation Couche-Tard Inc.’s attempts to acquire Seven & i Holdings Co., if it proceeds.
Regardless of whether the buyout offer is friendly or hostile, the deal could be blocked or the terms of agreement changed, should authorities deem it a national security risk.
Acquisitions of and investments in Japanese companies by foreign entities are regulated under the Foreign Exchange and Foreign Trade Act, designed in principle to protect the country from security risks, such as the outflow of military technology. Although a retailer, Seven & i is on the list of companies covered under the law, requiring prior notification for investment. Its presence on the list does not mean that investment is automatically disallowed.
The Circle-K owner confirmed earlier this week that it had made a preliminary proposal to buy 7-Eleven’s owner, which has a market value of ¥5.25 trillion ($36 billion). If successful, it would be the largest takeover of a Japanese company, and a rare example of inbound cross-border acquisitions. Although Japan’s government has taken a protectionist stance in the past, new corporate guidelines aimed at injecting more vigor into corporate Japan through improved governance and protections for investors are making such deals more likely.
The list of companies was compiled based on company hearings and assessments of their business structure, according to Miyuki Izumiyama, a finance ministry official. An exception could be made if Couche-Tard doesn’t install any of its own people on Seven & i’s board, among other conditions, according to the guidelines, but doing so could make running the business difficult if the deal actually materializes.
Although the specific reasons for Seven & i’s inclusion on that list isn’t public information, Asia University professor Arata Kuno said “what’s important is whether the business involves information or data relevant to national security.”
It’s possible that Seven & i handles the collection and management of such data, according to Kuno.
The Foreign Exchange and Foreign Trade Act has foiled deals in the past. In 2008, for example, concerns over power supply and nuclear energy led Japan to block the London-based Children’s Investment Fund from buying shares in Electric Power Development Co., known as J-Power.
In 2021, Couche-Tard’s attempted buyout of supermarket operator Carrefour SA was abandoned following resistance from the French government.
“The Japanese government has to walk a fine line by weighing data leaks and other cybersecurity risks against the possible economic benefits of foreign investment,” Kuno said. “Cases like these are becoming increasingly frequent.”
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