Customers leave a 7-Eleven convenience store operated by Seven & i Holdings Co. in Kobe, Japan, Friday, Aug. 30, 2024. Alimentation Couche-Tard Inc. had made a preliminary, non-binding offer to acquire Seven & i, which operates more than 85,000 stores worldwide. The deal would be the largest ever foreign takeover of a Japanese company. Photographer: Soichiro Koriyama/Bloomberg via Getty Images
Bloomberg | Bloomberg |
Seven & i Holdings has rejected the takeover offer of the Canadian convenience store operator Late-night foodand said the offer was “not in the best interests” of its shareholders and stakeholders.
In a filing on the Tokyo Stock Exchange, 7-Eleven's owner said Couche-Tard had offered to acquire all of Seven & i's outstanding shares for $14.86 per share. According to LSEG data, the offer price will value Seven & i at $38.55 billion.
Stephen Dacus, chairman of the special committee Seven & i formed to evaluate Couche-Tard's proposal, described the proposal as “opportunistically timed and grossly underestimates our independent path and the other actionable opportunities we see to realise and unlock shareholder value in the short to medium term.”
In April, Seven & i announced a restructuring plan for the company aimed at expanding 7-Eleven's presence worldwide and divesting its underperforming supermarket business.
Stock chart symbolStock chart symbol
Dacus wrote that even if Couche-Tard increased its offer “very significantly,” the proposal did not take into account the “multiple and significant challenges” that the takeover would face from U.S. competition authorities.
“Apart from your simple assertion that you do not believe a merger would unduly affect the competitive environment and that you would 'consider' possible divestments, you have not provided any indication of your view on the extent of divestments required or their impact,” he wrote in a letter apparently addressed to ACT Chairman Alain Bouchard and published in Tokyo Stock Exchange filings.
He also pointed out that the Couche-Tard proposal did not include a timetable for overcoming regulatory hurdles, nor did it say whether the company was “prepared to take all necessary steps to obtain regulatory approval, including legal action with the government.”
Dacus said Seven & i is open to seriously considering proposals that are in the best interests of the company's shareholders and stakeholders, but he warned that it would also oppose proposals that “deny our stakeholders the intrinsic value of the company or fail to specifically address very real regulatory concerns.”
Shareholder comments
In an interview with CNBC's “Squawk Box Asia” shortly before the response was filed on Friday, Ben Herrick, associate portfolio manager at Artisan Partners, said Couche-Tard's offer “underscores the fact that this management team and the board have not done everything in their power to increase the shareholder value of the company.”
Artisan Partners is a US fund that owns a stake of just over one percent in Seven & i. In August, the company reportedly asked Seven & i Holdings to “seriously consider” the takeover offer and to solicit offers for the company's Japanese subsidiaries “as soon as possible”.
Herrick said Artisan had asked Seven & i to review the offer because the fund believed that capital allocation abroad had been overlooked.
He said no major changes were needed in Seven & i's Japanese convenience store business, but said there were “huge opportunities” to attract international licensees outside the United States.
“You have over 50,000 stores, or about 50,000 stores that generate about $100 million, or just over $100 million, in operating profit for the company. So I think there's a big mismatch here,” he said.
Herrick also believes Seven & i has been slow to implement changes due to poor oversight and accounting.
“We really need the company to implement its plan here faster. [Seven and i President Ryuichi] Isaka presented his 100-day plan for reform in 2016 [general merchandise store] Ito-Yokado. And we're approaching day 3,000 here. So I don't think speed has been a big part of that culture, and that has to change,” he stressed.
Richard Kaye, portfolio manager at independent asset management group Comgest, disagreed in an interview with CNBC's “Squawk Box Asia” on Monday, saying: “I don't think there is any case for radical reform by a foreign acquirer.”
The company is doing a “phenomenal job” when it comes to logistics and product innovation, and “I find it hard to believe that it could be done much better,” he added.