Parent Company of 7-Eleven Declines $38.6 Billion Acquisition Bid, Claims Offer 'Significantly Undervalues' the Company

Seven & i Holdings has turned down a takeover bid from Canadian convenience store operator Alimentation Couche-Tard, citing that the offer is "not in the best interest" of its shareholders and stakeholders.

 

According to a filing with the Tokyo Stock Exchange, the owner of 7-Eleven disclosed that Couche-Tard had proposed to buy all outstanding shares of Seven & i for $14.86 per share, which would value Seven & i at $38.55 billion based on LSEG data.

 

Stephen Dacus, chairman of the special committee formed by Seven & i to review Couche-Tard's proposal, described the proposal as "opportunistically timed and significantly undervalues our standalone strategy and the additional actionable paths we see to enhance shareholder value in the near to medium term."

 

In April, Seven & i announced a restructuring plan focused on expanding 7-Eleven's global footprint while divesting underperforming supermarket operations.

 

Dacus noted that even if Couche-Tard significantly raised its bid, the proposal fails to consider the "numerous and significant challenges" the acquisition would face from U.S. antitrust agencies.

 

"Beyond your simple claim that you do not believe a merger would negatively affect the competitive landscape and that you would 'consider' potential divestitures, you have provided no details on the extent of divestitures required or how they would be implemented," he wrote in a letter seemingly addressed to ACT Chair Alain Bouchard, which was included in the Tokyo Stock Exchange filing.

 

He also highlighted that the Couche-Tard proposal did not specify any timeline for overcoming regulatory obstacles or indicate if the company was "prepared to take all necessary actions for regulatory clearance, including litigation with the government."

 

Dacus affirmed that Seven & i is open to sincerely considering proposals that benefit its stakeholders and shareholders but will resist ones that "strip our shareholders of the company's intrinsic value or fail to address significant regulatory concerns."

 

Ben Herrick, associate portfolio manager at Artisan Partners, told CNBC's "Squawk Box Asia" shortly before the response was filed on Friday that the Couche-Tard offer "highlights that the current management team and the board have not fully utilized their potential to elevate the corporate value of this organization."

 

Artisan Partners, a U.S. fund holding just over a 1% stake in Seven & i, reportedly had urged Seven & i Holdings in August to "seriously consider" the buyout offer and solicit bids for the company's Japanese subsidiaries "as soon as possible."

 

Herrick elaborated that Artisan believes capital allocation abroad has been neglected and that Seven & i should consider the offer.

 

He mentioned that the Japanese convenience store segment of Seven & i needs little adjustment but identified a "huge opportunity" in international licensees operating outside the United States.

 

"You have over 50,000 stores generating about $100 million or just over $100 million in operating profit for the company, which indicates a significant discrepancy," he noted.

 

Herrick also believes that due to insufficient oversight and accounting, Seven & i has been slow to implement changes.

 

"The company needs to accelerate its plan implementation. [Seven and i President Ryuichi] Isaka introduced a 100-day plan to reform [general merchandise store] Ito-Yokado in 2016, and nearly 3,000 days later, progress is slow. A faster pace is needed," he asserted.

 

Conversely, Richard Kaye, portfolio manager at independent asset management group Comgest, expressed a different view in an interview on CNBC's "Squawk Box Asia" on Monday: "I don’t think a radical reform from a foreign acquirer is necessary."

 

He added that the company excels in logistics and product innovation and "it’s hard to imagine that it could be done significantly better."