Why Couche-Tard Move Away From $47 Billion Seven & I Deal Isn’t The End

Japanese 7-Eleven owner Seven & i Holdings Co. could yet remain a takeover target if the convenience store group fails in its business turnaround after dramatically seeing off Alimentation Couche-Tard Inc.’s $45.8 billion approach.

The deal, which would have been the biggest ever foreign takeover of a Japanese company, ended in acrimony as Canada’s Couche-Tard issued a 1,500-word letter to Seven & i’s founding Ito family claiming they had never been open to talks and that the board had carried out a “calculated campaign of obfuscation and delay.”

And newly appointed Seven & i CEO Stephen Dacus will now have to convince investors that reforms proposed by his management team can deliver, with the CEO due to give an update on its turnaround in August.

But it looks like he will have a job on his hands to convince investors. While Seven & i shares have climbed since Couche-Tard’s interest became public in August last year, they are down around 13% since the proposal was withdrawn this week and are off about a fifth in the year to date.

Earlier this week Alimentation Couche-Tard flounced away from its pursuit as the global convenience store and fuel operator cited a “lack of constructive engagement”.

In a highly unusual step Alex Miller, President and CEO of Alimentation Couche-Tard, and Alain Bouchard, Founder and Executive Chairman, wrote in a letter to the Japanese company’s board: “There has been no sincere or constructive engagement from 7&i that would facilitate the advancement of any proposal, contrary to comments made publicly by 7&i representatives. Rather, you have engaged in a calculated campaign of obfuscation and delay, to the great detriment of 7&i and its shareholders.”

Among other things, Couche-Tard claimed that documents it received from Seven & i lacked important information and that executives had failed to show up at meetings.

Seven & i Rebuts Claims

Seven & i said in a rebuttal that it was disappointed by Couche-Tard’s decision, claiming the Couche-Tard letter contained “numerous inaccurate statements” and maintained that its special committee had taken part in “sincere and constructive discussions.”

In May, things looked very different. Couche-Tard and Seven & i had entered into a nondisclosure agreement to advance discussions and began looking for potential buyers for their overlapping U.S. convenience stores in a move to mitigate antitrust concerns. In its letter, Couche-Tard maintained there was a “a clear path to U.S. regulatory approval.”

For Seven & i’s part, further efforts will be tough to enact, given that it has already taken major steps to overhaul the business and is set to sell off some retail operations in a $5.4 billion deal that will close September.

It is also taking steps to bolster its shares with a five-year, circa $13.5 million buyback. But so far that has failed to move the dial, especially as some of the funding was set to be raised by an IPO of the U.S. business. Couche-Tard’s exit has raised questions over that plan.

Seven & i Looks To Reform

However, should leave Seven & i clear to pursue growth and profitability in its convenience stores business, which investors have been pushing for. Indeed, Seven & i has previously reformed after external pressure. In 2016, concerns raised by activist fund Third Point over executive appointments resulted in the exit of former chair Toshifumi Suzuki.

And ValueAct Capital Management’s campaign led to Seven & i selling its Sogo and Seibu Co. department stores to Fortress Investment Group in 2022 for $1.7 billion, although it failed to oust then CEO Ryuichi Isak.

For Seven & i, while operating profits for the March-thru-May rose 9.7% year-on-year to $438 million, it was the second-lowest quarterly result in the past decade and domestic same-store sales remained flat and U.S. revenue remained weak.

While Couche-Tard may have stepped away, its decision to make its views public could potentially attract other bidders or activist investors, or prompt the resurrection of a management buyout by Seven & i’s founding Ito family. The underperfroming share price also makes Seven & i a prime candidate.

Indeed, while Couche-Tard has placed the blame squarely on Seven & i’s management, some analysts have argued that the failure of the deal was simply because the offer from was not big enough to counter Seven & i’s opposition.