Big buy: A shopper leaving a 7-Eleven convenience store in Kawasaki, Japan. Circle K operator Couche-Tard is makjing a proposal to take over 7-Eleven in a US$38bil deal. — Bloomberg
TOKYO: Alimentation Couche-Tard Inc’s proposed acquisition of Seven & i Holdings Co, if successful, wouldn’t just be the largest takeover of a Japanese company, it would also be extremely rare.
The Canadian convenience store chain operator’s preliminary proposal to buy 7-Eleven owner Seven & i Holdings Co could be worth more than 5.63 trillion yen (US$38.4bil), based on the Japanese company’s market value after news of the potential deal was disclosed.
Until now, an attempt to acquire such a well-known Japanese business at such scale would have been dismissed as audacious and unlikely, given the protectionist tendencies of the government and corporate boards prioritising stability over shareholder value.
But the tide may be turning, with new corporate guidelines aimed at injecting more vigour into corporate Japan through improved governance and protections for investors.
It’s not clear yet how much Couche-Tard, which is smaller than Seven & i, may propose to pay and structure any potential deal, or whether it is seeking a partial stake or buyout.
Still, the Canadian company’s plan will benefit from a potential ally – ValueAct Capital Management LP.
The activist fund has been pushing Seven & i’s management to narrow its focus to 7-Eleven stores, and said last year that they would be worth more as a standalone listed company, and sought to replace chief executive officer Ryuichi Isaka.
In response, he has taken restructuring measures and initiated a buyback.
But given the reaction among investors who bid up the company’s shares by 23% on Monday when the news broke, a record one-day gain for the stock, it may be hard to justify any pushback to a takeover proposal.
“The main implication is that the stock is clearly undervalued,” said Rafael Nemet-Nejat a senior portfolio manager at Jin Investment Management Pte.
The proposal “may also put pressure on the company to speed up restructuring as well, as the management is likely reluctant on foreign buyouts.”
If Couche-Tard ends up making a partial bid, gains could be limited and the shares could even drop, Nemet-Nejat added.
In a sign of investor scepticism, Seven & i fell as much as 12% in early morning trading yesterday, paring Monday’s record gain.
It’s not clear whether ValueAct still holds any stock in Seven & i, based on data compiled by Bloomberg, which showed that they no longer own a stake.
The investor, which had previously disclosed a 4.4% holding in the Japanese company, may still have significant positions in part or in full through swap arrangements with brokers, which do not require stock exchange disclosure.
If successful, a Couche-Tard takeover of Seven & i would eclipse KKR & Co’s 670 billion yen deal in 2022 to buy Hitachi Transport System Ltd, which at the time was the biggest full takeover by a listed Japanese business by a foreign entity.
In that transaction, the private equity firm benefited from parent Hitachi Ltd’s desire to divest assets to focus on its core businesses.
But the history of attempted takeovers of Japanese companies by outsiders is messier.
KKR, CVC Capital Partners and Blackstone Inc walked away from a buyout of Toshiba Corp after meeting stiff resistance from the board. Concerns about the valuation, complexity and political nature of the deal were behind their decision.
Eventually a consortium led by a domestic fund prevailed in the negotiations last September. — Bloomberg
