Alimentation Couche-Tard Inc.'s incoming CEO says the retailer is convinced it can close on a blockbuster bid to take over 7-Eleven-owner Seven & i Holdings Co. Ltd, even as the target company says the offer is too low to seriously consider.
Alex Miller, who is set to replace outgoing CEO Brian Hannasch on Friday, said he is confident in the company's ability to finance and complete the proposed deal.
"We see a strong opportunity to grow together, enhance our offerings to customers and deliver a compelling outcome for the shareholders, employees and key constituencies of both companies," Miller told analysts on a conference call Thursday.
Laval, Que.-based convenience store chain Couche-Tard revealed in mid-August that it had made a friendly, non-binding bid to acquire all outstanding shares in Japan's Seven & i, which said it would convene a special committee of its board of directors to review the offer.
In addition to global convenience store chain 7-Eleven, Seven & i owns supermarkets, food producers, household goods retailers and financial services companies.
Later Thursday, Seven & i published its response to the offer, saying its board of directors had unanimously concluded that the proposal was not in its shareholders' best interests. In a letter from a special committee of the board convened to assess the offer, board chair Stephen Dacus says it is their belief that it is "opportunistically timed and grossly undervalues our standalone path and the additional actionable avenues we seek to realize and unlock shareholder value in the near- to medium-term."
The board is confident that it can unlock shareholder value through a number of strategic actions, including with its U.S. business, Dacus wrote.
In the letter, Seven & i cited regulatory concerns it says are not adequately addressed in the proposal.
Couche-Tard did not immediately respond to a request for comment about Seven & i's response to the bid.
Analysts have cast doubt on whether the two companies can reach a deal because they believe satisfying Japanese regulators will be onerous and could force Couche-Tard to let go of some of its assets.
"Although there have been reforms in the country to make takeovers easier, most Japanese firms are very cautious and resistant to change. That includes Seven & i, whose complex operating model also hampers a deal," Neil Saunders, managing director of GlobalData, said in an August email.
"Unless the Alimentation Couche-Tard has a substantial premium attached, it is likely to be dismissed."
While Miller told analysts Thursday that he would not take questions about his company's bid for Seven & i, he said Couche-Tard has "deep respect" for its takeover target and its franchisee network, operating model and brand.
Miller's remarks come as Couche-Tard is in expansion mode.
It closed on a deal to buy certain European retail assets from French oil giant TotalEnergies SE in January.
The same day it announced its Seven & i bid, Couche-Tard said it signed an agreement to buy GetGo Cafe stores from supermarket retailer Giant Eagle Inc.
Terms of the GetGo deal, which is expected to close next year, were not disclosed.
Like Couche-Tard, GetGo has gas stations and convenience stores, but also has a heavy focus on made-to-order food, which Miller said is "extremely popular" and offers lots of opportunities for his company.
"We clearly see some fantastic reverse synergies with the acquisition," he said.
GetGo has about 3,500 employees and operates about 270 convenience retail and gas stations in Pennsylvania, Ohio, West Virginia, Maryland and Indiana.
Meanwhile, Couche-Tard spans 31 countries and more than 16,700 stores. If it manages to wrangle Seven & i, that deal would add 85,800 stores to its empire.
"While investor focus is squarely on a potential Seven & i transaction, in our view key to Alimentation Couche-Tard as a compelling investment lies in performance of existing footprint and Alimentation Couche-Tard's ability to drive strong earnings/cash flow despite challenging backdrop," said Irene Nattel, an RBC Capital Markets analyst, in a note to investors Thursday.
The company's first-quarter net earnings attributable to shareholders were released Wednesday. It reported US$790.8 million, down from US$834.1 million in the same quarter last year.
The earnings for the period ended July 21 amounted to 83 cents US per share, down from 85 cents US per share last year, while analysts had expected earnings of 84 cents US, according to LSEG Data & Analytics.
Revenue totalled US$18.3 billion, up from US$15.6 billion last year.
Miller said "the consumer is stretched," a phenomenon retailers have been lamenting for months as interest rates slowly drop and costs for many household goods remain high.
It's cropped up at Couche-Tard in the form of customers making fewer visits and spending less when they do shop at the chain.
"Fuel is a great example of that," he said.
"We actually have higher traffic to our forecourts, but the average fill is down to a level that leads to negative same-store volume." (Forecourts are the area in front of the main convenience store building.)
The company is also seeing more shoppers opt for private label products, which tend to be more affordable, and high interest in value and bundled meals it offers for between $3 and $5 in the U.S.
While the chain always offers promotions, Miller said, the company will likely lower the number of promotions and be more targeted.
This report by The Canadian Press was first published Sept. 5, 2024.
Companies in this story: (TSX:ATD)
Tara Deschamps, The Canadian Press
