Seven & i Holdings Co. Ltd., parent of the 7-Eleven convenience-store brand, today sent a letter to its shareholders to provide additional information related to its “constructive, ongoing engagement” with Alimentation Couche-Tard Inc. (ACT), parent of the Circle K c-store brand, and other potential acquirers. The letter focuses on the options for potential divestitures, including Couche-Tard selling all of its stores in the United States.
In August, Laval, Quebec-based Couche-Tard submitted a proposal of $39 billion to acquire Tokyo-based Seven & i, which formed a special committee of independent outside directors to review it. Seven & i said the proposal “undervalues” the company. Couche-Tard in October then raised its offer to $47.2 billion.
The company was also considering $58 billion management buyout intended to block Couche-Tard’s takeover with funding from banks, trading company Itochu Corp. and the founding Ito family. In late February, Itochu withdrew from the buyout, dooming that effort.
Last week, Seven & i announced a series of “transformational” leadership, capital and business initiatives to sharpen its focus on its convenience-store business. The new initiatives, intended to improve the company’s performance while avoiding Couche-Tard’s advances, include a North American initial public offering (IPO) for 7-Eleven and a large, potential divestiture package that could be sold off if necessary for regulatory approval. They also include a leadership change, with Stephen Dacus, currently chairman of the board and lead independent director, succeeding Ryuichi Isaka as president and representative director and CEO. And they include the sale of some noncore assets to focus more on convenience.
“The overriding goals have been to address both value and certainty of closing,” the letter said. Seven & i points out that a combination of Seven & i and ACT would face significant antitrust hurdles. “A consistent threshold issue that we have raised from the outset has been how to put together a divestiture package involving an unprecedented number of 2,000 or more overlapping stores that could be divested to a viable, credible and independent buyer in a manner that could be stood up to operate effectively on a go-forward basis and assure competition between the buyer and ACT post its acquisition of Seven & i.”
“Until recently, however, ACT’s position had been that Seven & i should first sign a deal to be acquired by ACT and then either spin out overlapping stores or try to find a divestiture buyer only after signing a definitive agreement. This would have put an unacceptable burden of risk on Seven & i that the transaction will not be realized. There is no certainty that a divestiture package can be stood up as an independent company or that a suitable divestiture buyer can be identified that can operate it independently—both key factors that would be considered by regulatory authorities and courts.”
As a “cautionary tale,” Seven & i cited the Albertsons-Kroger transaction that the U.S. Federal Trade Commission (FTC) opposed and terminated after more than two years of seeking to clear regulatory hurdles.
The deal “clearly demonstrates the risks of consumer-facing retailers looking to divest thousands of stores without a buyer that is market-tested and well positioned to preserve the competitive landscape. As responsible stewards of our shareholders’ capital, we will not blindly enter a transaction with no clear path to closing that could leave our company in a value destructive limbo for multiple years.”
Seven & i has proposed that the companies do this work on the front end jointly, not after they sign a deal. It proposed these “actionable paths” that Couche-Tard could take to mitigate that risk:
• Couche-Tard could divest all the stores including Circle K stores in the United States in a “clean sweep,” taking U.S. antitrust risk off the table.
• Couche-Tard could execute a definitive divestiture agreement with a buyer of the 2,000 or more divestiture stores as a condition precedent to the signing of a definitive merger agreement between Seven & i and Couche-Tard.
• Together, without waiting for a definitive agreement, Couche-Tard and Seven & i could immediately map out the viability of a divestiture process by defining operational, management and financial characteristics of the group of stores to be sold and identifying potential buyers. “This would provide some insight into the prospects of success along terms that had a reasonable likelihood of satisfying U.S. antitrust regulators and court challenge,” said the letter.
Seven & i concluded, “We are pleased that ACT has recently agreed to explore the third option we proposed above, and joint outreach by financial advisors to ACT and Seven & i to potential buyers has begun. We and our advisors believe we can now make progress towards determining whether a credible and actionable remedy and divestiture package can be achieved that would allow a realistic assessment of ACT’s proposal under the areas we noted above—value and certainty of closing,”
Alimentation Couche-Tard did not immediately respond to a CSP Daily News request for comment.
Couche-Tard said last week that it has held “exploratory discussions” with buyers for any U.S. stores that would need to be divested to secure regulatory approval for a potential acquisition of Seven & i.
7-Eleven is No. 1 on CSP’s 2024 Top 202 ranking of U.S. c-store chains by store count. Alimentation Couche-Tard is No. 2.
Seven & i, Tokyo, operates convenience stores, superstores, supermarkets, specialty stores, foodservices, financial services and IT services. Irving, Texas-based 7-Eleven Inc. operates, franchises or licenses more than 83,000 convenience stores in 19 countries and regions, including more than 13,000 7-Eleven convenience stores in the United States and Canada.
Alimentation Couche-Tard, Laval, Quebec, operates in 31 countries and territories, with more than 16,700 stores. Its network includes more than 7,100 stores in the United States, primarily under the Circle K banner.
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