Couche-Tard clears price hurdle to Seven & i deal
09/10/2024 13:00
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own. Updates to add graphic.)
By Anshuman Daga
SINGAPORE, Oct 9 (Reuters Breakingviews) - Being short
of change was never the top hurdle for Alimentation Couche-Tard
ATD.TO to buy Seven & i 3382.T . Nonetheless, the
deep-pocketed Canadian suitor has sweetened its indicative
offer, Bloomberg reported on Wednesday citing sources. The $55
billion enterprise value ensures price is not in the way of
creating a global convenience store giant.
The operator of the Circle-K gas station chain can probably
justify paying the revised amount without destroying value for
its own shareholders. The $18.19 per share amounts to a 53%
premium to the undisturbed share price on Aug. 16 at current
exchange rates, more than double the premium Seven & i said
"grossly" undervalued it.
Couche-Tard would need to save nearly $2 billion of annual
costs but that looks doable. Assuming a 28% tax rate, the buyer
could seal a return that covers its 7.1% cost of capital,
Breakingviews calculates using LSEG data. If it saves more,
Couche-Tard would still have room to sweeten a deal further.
Either way, the latest indicative price raises the bar for
Seven & i's strategic update. CEO Ryuichi Isaka is expected on
Thursday to detail plans to unlock shareholder value and report
weak earnings: Seven & i's operating profit will fall 9% in the
three months ending August from the year-ago period, per
analysts forecasts.
Isaka may seek buyers for Seven & i's superstores unit that
it pledged in April to float as early as 2026, and for the
company's stake in Seven Bank 8410.T . That would leave Seven &
i to focus on its core convenience store business. Still,
Isaka's track record of creating value is poor and Couche-Tard's
offer is high enough that he ought to engage in talks.
The duo can jointly consider how best to tackle regulatory
challenges in the United States where Seven & i is the market
leader with a roughly 10% share, followed by Couche-Tard. Those
concerns are one reason the target's stock is trading 15% below
the latest indicative price but Seven & i can demand a large
break fee to compensate for antitrust risks that could lead to
an extended deal timeline.
The Japanese company recently secured a special status in
Japan as a "core" designated company, complicating any hostile
takeover. Couche-Tard, though, is dangling enough money to make
a friendly deal possible.
Follow @anshumandaga on X
CONTEXT NEWS
Alimentation Couche-Tard has sent Seven & i a new potential
acquisition price of $18.19 per share, Bloomberg reported on
Oct. 9 citing people with knowledge of the matter. It added the
Canadian company sent the indicative offer to its target on
Sept. 19.
At current exchange rates, it amounts to a 53% premium to
the company's undisturbed share price on Aug. 16. The previous
indicative offer was $14.86 per share. Seven & i stock rose as
much as 12% following the Bloomberg report.
Seven & i will seek buyers for a majority stake in its
supermarket business, with the process set to start before the
end of the year, the Nikkei reported on Oct 4, citing people
familiar with the matter.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic: Seven & i stock surges after Couche-Tard ups indicative
offer https://reut.rs/4eyLuJz
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Una Galani and Aditya Srivastav)
((For previous columns by the author, Reuters customers can
click on DAGA/
anshuman.daga@thomsonreuters.com))