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Convenience store chains in Japan are not just a place for rice balls and fried chicken, but the go-to place for locals for everything from cash withdrawals to printing a document. As an integral part of daily Japanese life, a takeover of the Japanese operator of 7-Eleven shops by a foreign group will not be an easy task. But shareholders of Seven & i stand to benefit from the process.
Canada’s Alimentation Couche-Tard, which owns the Circle-K brand in the US, told Seven & i that it wants to work together to agree a deal after the Japanese convenience store operator rejected its initial $38.5bn takeover offer.
Couche-Tard has said it is confident it can finance a takeover in cash and that it is willing to sell assets to secure regulatory approval. Seven & i has argued there will be antitrust concerns.
The pushback is not surprising given the history of hostility towards foreign takeovers of local groups in Japan. Yet shares of Seven & i rose on Monday bringing gains up to about a third in the past month, giving the company a market value of about $40bn. This time may be different.
A deal makes sense for Couche-Tard. It would create a global convenience store leader with more than 100,000 stores. Seven & i is especially attractive to foreign buyers because about three-quarters of group revenues come from outside Japan — even though Japan has more 7-Eleven stores than any other country. Most overseas sales come from North America. In the US, a deal would create the country’s biggest convenience store operator.
Antitrust will indeed be a key consideration. In the US and Canada, 7-Eleven operates, franchises and licenses more than 13,000 stores. In addition to 7-Eleven stores it operates and franchises other brands including Speedway, Stripes and Laredo Taco Company. The size of the deal, should it go through — as potentially the biggest foreign takeover of a Japanese group — means scrutiny from Japanese authorities too.
For impatient Seven & i investors, the proposal comes at a good time. Its shares trade at an enterprise value of just 0.7 times forward sales. The group has long struggled with a heavy conglomerate structure. The convenience store operator’s businesses sprawl across financial services into managing hotels and even underground car parks. Activist ValueAct Capital last year called for a change in the company’s management and the spin-off of underperforming businesses.
Couche-Tard has said it will consider taking on more debt if needed, suggesting a higher bid may come. After the corporate governance reforms aimed at revitalising Japan’s corporate culture, the arrival of foreign bidders suggests investors may finally see more change.
