Failed Seven & i deal pushes Couche-Tard to focus on smaller buys, share buybacks, and US strategy
A US$46bn takeover that could have redefined Couche-Tard’s global footprint ended with an abrupt exit and sharp criticism over governance, as the company pulled the plug on its pursuit of Japan’s Seven & i Holdings Co. Ltd., owner of 7-Eleven.
The Laval-based convenience retail giant ended its bid after nearly a year of stalled discussions, citing a “lack of constructive engagement” and accusing the Japanese company’s leadership and founding family of a “calculated campaign of obfuscation and delay,” as reported by The Globe and Mail.
According to Couche-Tard, its repeated efforts to engage with Seven & i’s board, management, and founding Ito family failed. In a letter to the board, executives said that despite two management meetings and 10 weeks of due diligence, “none” of the Canadian company’s critical questions were answered.
Seven & i, for its part, said it acted “in good faith and constructively,” while also warning early on about “extraordinary antitrust hurdles” that would have extended the regulatory timeline, as noted by BNN Bloomberg.
Market reaction was swift—Couche-Tard shares jumped 8 percent to $74 on Thursday. Investors had expressed concern about the potential debt load and dilution tied to the transaction.
Mark Rutherford, portfolio manager at Mawer Investment Management, said in an interview with The Globe and Mail that the firm’s primary message had been “not to chase” a deal of this size at any cost. Mawer holds a 1.75 percent stake in Couche-Tard valued at over $1.2bn.
Martin Landry, managing director at Stifel, said in a report cited by BNN Bloomberg that Couche-Tard “faced challenges since the beginning” after its offer leaked and forced a public disclosure with limited details on strategy or financing.
As per The Globe and Mail, Couche-Tard also accused Seven & i of refusing to share information with potential buyers of 2,000 US stores, a step that could have addressed competition concerns.
Now, with the Seven & i deal shelved, Couche-Tard is expected to resume its share buyback program and shift attention to smaller, more manageable acquisitions. According to Landry, these moves would be well received by investors and could generate momentum for the stock.
The company has completed 75 acquisitions over the past two decades, including its most recent deal to acquire GetGo Café and Market from Giant Eagle. That deal added 270 stores and 3,500 employees across five US states.
Scotiabank analyst John Zamparo estimated in a note, as reported by The Globe and Mail, that buying 200 stores can drive a 1 percent gain in earnings per share even before cost savings. He identified around 40 such businesses in the US market.
The US remains a fragmented market, with the top 10 players accounting for just 19 percent of all convenience stores. Stifel’s Landry said Couche-Tard’s strategy of consolidating through small and mid-size acquisitions “doesn’t change,” adding that “their recipe is very clear.”
Some analysts, including Brian Madden of First Avenue Investment Counsel, noted the strategic potential of the abandoned deal. He called it “a gem of a deal” that would have expanded Couche-Tard’s reach in Asia but said the company made the right choice by walking away from a hostile approach in a less shareholder-friendly environment.
Madden also said Couche-Tard may now look to densify its Western European operations or gradually expand its Asian presence, where its Circle K brand already operates in Malaysia and the Philippines.
EG Group, a Britain-based convenience and gas chain reportedly considering a US IPO at a potential US$14bn valuation, could also be a future target, according to reports cited by The Globe and Mail.
Landry added that organic growth should not be overlooked. Despite the perception that Couche-Tard’s success stems from acquisitions, National Bank analyst Vishal Shreedhar found that growth in earnings before interest, taxes, depreciation and amortization has come equally from organic and inorganic sources over the past decade.
In the near term, analysts said the challenge will be reinvigorating the company’s US operations. Landry noted that same-store merchandise sales in the US have declined for six consecutive quarters, and Couche-Tard will need to bolster its food offerings to increase traffic.
Founded in 1980 by chair Alain Bouchard and three partners, Couche-Tard has grown from a regional chain to a global operator with 17,000 stores in 29 countries and 146,000 employees.
