Couche-Tard’s latest acquisition target: Do the benefits outweigh the costs? 

Seven & I Holdings has made headlines again as Circle K’s parent company Alimentation Couche-Tard confirmed it has made a non-bidding proposal to the Japanese company. The deal, if it happens, is expected to make the 7-Eleven parent the largest-ever Japanese target of a foreign buyout.

However, the potential antitrust issues and the complexity of such a large-scale deal are expected to influence the progression of the proposed acquisition. 

What does it mean for both companies?

Neil Saunders, MD of retail at Global Data, told Inside Retail the potential takeover bid could represent a significant development in the industry.

“7-Eleven is the biggest operator in the US convenience retail store space with a 14.5 per cent share of the market last year,” said Saunders. “By comparison, Alimentation Couche-Tard’s banners had a 4.6 per cent market share. So, combining the two would produce an entity that controls almost a fifth of the market.”

The value of the proposal has not yet been disclosed. However, Seven & I Holdings was valued at US$38 billion as shares surged 23 per cent on Monday after the news broke. Meanwhile, Couche-Tard, which is based in Canada, is valued at roughly $58 billion.

Couche-Tard said in a statement that there can be no certainty at this stage that any agreement or transaction will be reached. 

Saunders said the deal would increase Alimentation Couche-Tard’s footprint globally, making it a more dominant force in the convenience space and improving its economies of scale.

“This would be helpful at a time when margins and growth are under pressure. However, as usual, whether the benefits from a tie up outweigh the cost of purchasing Seven & I Holdings remains to be seen,” he added. 

According to Technomic, 7-Eleven currently has more than 12,500 convenience stores in the US while Couche-Tard has more than 7000 retail stores in the country. The deal would potentially form one of America’s largest retail chains. 

Competition concerns

The recent move has raised significant concerns over antitrust compliance, reflecting the growing apprehension among stakeholders about the implications of such deals. 

The acquisition, if completed, would potentially be challenged by US regulators, given the likelihood that it could lead to price increases and reduce competition in the market. However, at this stage, as the specific details of the deal have not yet been disclosed to the public, industry experts said that it’s too early to make a definitive assessment of its impact. 

“In reality, because convenience stores form a part of a much wider food and groceries market, there are not all that many competition concerns,” Saunders said. “However, the levels of concentration will almost certainly attract FTC scrutiny which, given the current negative sentiment around consolidation and competition in the food and essentials space, will not make this deal an easy one.”

The expert added the other potential barrier to a merger will be the complexity of buying a Japanese firm. 

“Although there have been reforms in the country to make takeovers easier, most Japanese firms are very cautious and resistant to change,” Saunders said. “That includes Seven & I, whose complex operating model also hampers a deal. Unless the Alimentation Couche-Tard has a substantial premium attached, it is likely to be dismissed.” 

Couche-Tard withdrew its $20 billion offer to acquire the European retailer Carrefour SA in 2021, following strong resistance from French government officials to the proposed takeover. The company also walked away from a US$8.8 billion proposal to takeover Caltex Australia in 2020. 

Seven & I said it had set up a committee of independent directors to review Couche-Tard’s proposal. The company, which is commonly referred to as 7-Eleven’s parent, also operates Denny’s Japan restaurants, the Ito-Yokado supermarket chain and its own bank.

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