(Bloomberg) -- Seven & i Holdings Co. plans to tell Alimentation Couche-Tard Inc. that its offer price for the Japanese convenience store operator is insufficient and that competition law concerns remain.
The company’s board will send a letter to Couche-Tard on Friday Japan time, outlining its response to the proposal following a review by a committee of independent outside directors, according to people familiar with the matter who were unauthorized to speak publicly.
Seven & i will tell the Canadian company that its bid doesn’t reflect the value of its business and growth strategy. Couche-Tard’s offer was just under $15 per share, according to a person familiar with the matter. That would value the Japanese company at about ¥6 trillion ($42 billion) at the time of the offer, the person said.
Seven & I will also raise concerns about breaching US antitrust laws in the letter. A company spokesperson declined to comment. The news was first reported by Japan’s Nikkei newspaper.
Alex Miller, Couche-Tard’s incoming chief executive officer, told analysts Thursday that the company wants to engage “constructively” with Seven & i and that it’s confident it can finance the deal.
“We see a strong opportunity to grow together, enhance our offerings to customers and deliver a compelling outcome for the shareholders, employees and key constituencies of both companies,” Miller said. He did not provide any comment about Seven & i’s letter or the offer price.
Couche-Tard can increase its leverage ratio to 3.75 with no impact on its credit rating, according to executives. As of July 21, that ratio was 2.1 times, based on net debt to earnings before interest, taxes, depreciation and amortization.
‘Shareholder Interest’
“Perhaps the silver lining here is that discussions continue, and it appears Seven & i might just have shareholder interest in mind, assuming this just isn’t a facade,” Tyler Tebbs, CEO of research company Tebbs Capital, said in a note to clients.
Couche-Tard revealed its takeover approach for the parent company of the 7-Eleven convenience store chain in August. The proceedings are being closely watched in Japan and abroad as a test of new government guidelines on mergers and acquisitions instructing companies to seriously consider takeover offers.
A union of the two companies would create a global convenience store behemoth with more than 100,000 stores. That may invite scrutiny from US competition authorities, however.
Another potential obstacle is that the Japanese government can block the deal or ask for changes in the terms because Seven & i is on a list of companies considered important for national security.
Previously, an attempt to acquire such a well-known and large Japanese business would have been dismissed as unlikely, given the protectionist tendencies of the government and corporate boards prioritizing stability over shareholder value. But new corporate guidelines have been issued, aimed at injecting more vigor into corporate Japan through improved governance and protections for investors.
Couche-Tard’s buyout offer came as the Japanese retail conglomerate has been under pressure from activist shareholder ValueAct Capital Management LP to sharpen its focus to 7-Eleven’s operations, and pivot away from its supermarket and department store businesses. The group also pushed unsuccessfully to oust Chief Executive Officer Ryuichi Isaka.
In response, Seven & i has taken restructuring measures and initiated a buyback.
Couche-Tard shares were down 1.1% as of 10:20 a.m. Toronto time. The company has a stock market capitalization of C$70 billion ($52 billion).
--With assistance from Shoko Oda.
(Updates with deal value, comments from the Couche-Tard earnings call, analyst comment and share price.)
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