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The board of Seven & i Holdings has rejected a near $39bn cash takeover offer from Canada’s Alimentation Couche-Tard, arguing it “grossly undervalues” the Japanese group and did not reflect regulatory risks over any deal.
In a letter to Couche-Tard sent on Friday, the owner of the 7-Eleven convenience store chain said that the proposal of $14.86 per share in cash, was “not in the best interest of . . . shareholders and other stakeholders”.
“We are open to engaging in sincere discussions should you put forth a proposal that fully recognises our standalone intrinsic value,” said Stephen Dacus, chair of Seven & i’s board, in the letter. “However, we do not believe . . . the proposal you have put forward provides a basis for us to engage in substantive discussions.”
Dacus also chairs a special committee that Seven & i set up to examine Couche-Tard’s bid, which came to light on August 19. Neither company had previously shared substantive details on the nature or price of the offer.
Seven & i said that the bid was “opportunistically timed and grossly undervalues” its business, which runs from restaurants and financial services to supermarkets and a sprawling convenience store empire in Japan and the US.
It added that even if Couche-Tard were to improve the value of the proposal “very significantly” it would not “adequately acknowledge the multiple and significant challenges such a transaction would face from US competition law enforcement”.
Couche-Tard owns the rival Circle K convenience store chain.
Brokers in Tokyo said the 1.8 per cent dip in Seven & i ’s share price on Friday after the rejection letter was made public reflected investors’ bet that Couche-Tard could decide to improve its offer.
“Clients are waiting to see how this turns out. They started buying other vulnerable-looking, undervalued Japanese names on the expectation that bids may come in now, and that a first rejection doesn’t automatically mean game over,” said a broker at one large Japanese brokerage.
On Thursday Couche-Tard executives told investors that they remained “confident” in their “ability to finance and complete this combination” but also said that they had “walked away from many more deals than we closed”. The group did not respond to a request for comment on Friday.
The share price fall to ¥2,124, or close to $15 a share, gives Seven & i a market capitalisation of Y5.6tn, or $39bn, close to the offer price but 21 per cent above where the stock was trading before the bid became public.
Travis Lundy, an independent special situations analyst, estimated the Couche-Tard takeover offer to have an enterprise value of roughly ¥8.6tn, or close to $60bn, including ¥3tn of net debt and minority interest.
Analysts covering the company have speculated that its management, in defending Seven & i against a buyout, would attempt to present 7-Eleven stores in Japan as indispensable social infrastructure in a country prone to natural disasters.
In the letter on Friday, the Japanese group said that, while Couche-Tard acknowledges “the crucial role that 7&i plays in everyday life in Japan . . . this is clearly an area that would require further discussion should we reach that point”.
One fund manager who holds a stake of less than 1 per cent stake in Seven & i said the letter showed that the company was willing to talk “and indeed seems fairly open to the idea of being taken over”.
Couche-Tard’s unsolicited takeover bid for Seven & i is the largest in Japan by a foreign company. The offer follows years of stop-start progress on corporate governance reform in Japan, which has put boards under greater pressure to prioritise shareholders’ interests.
