Alimentation Couche-Tard’s interest in acquiring Seven & i Holdings, the parent company of 7-Eleven, seems to be driven primarily by the attractiveness of the company’s stock value. According to Richard Kaye, portfolio manager at Comgest, Couche-Tard views Seven & i Holdings as an appealing acquisition target due to its relatively low stock valuation compared to global peers.
The Circle K operator’s bid, which was made public last month, could potentially become the largest foreign acquisition of a Japanese company if completed. However, the exact terms of the offer have not been disclosed. This move comes amidst Seven & i’s ongoing restructuring efforts, which include expanding 7-Eleven’s global footprint and divesting less profitable supermarket operations.
On Friday, Artisan Partners Asset Management, a U.S.-based investment firm, urged Seven & i to seriously consider Couche-Tard’s offer and expedite the process of seeking other offers for its Japanese subsidiaries. Artisan’s portfolio managers believe that engaging with Couche-Tard could enhance the company’s value and lead to positive outcomes for stakeholders in Japan.
However, Richard Kaye expressed skepticism about the need for a major overhaul of Seven & i’s operations by a foreign buyer. Speaking on CNBC’s “Squawk Box Asia,” Kaye argued that Seven & i is already excelling in logistics and product innovation, and he does not see significant room for improvement from an external acquirer. Instead, he suggested that Couche-Tard’s interest likely stems from the stock being undervalued.
Currently, Seven & i Holdings trades with a price-to-earnings ratio of 27.96 and a price-to-book ratio of 1.47. In contrast, Couche-Tard operates approximately 16,700 stores worldwide, compared to Seven & i’s 85,800 stores. Despite the disparity in store numbers, Couche-Tard holds a higher market valuation of $54 billion, compared to Seven & i’s $38.3 billion.
The acquisition is expected to face regulatory challenges, particularly concerning antitrust scrutiny in the U.S. and Japan. Retail analyst Bryan Gildenberg has indicated that the deal might require divestments to meet regulatory approval.
Moreover, Seven & i is reportedly seeking designation as a “core” company under Japan’s Foreign Exchange and Foreign Trade Act, which would subject the deal to additional scrutiny by Japan’s finance ministry. This move reflects concerns that a Couche-Tard buyout could potentially disrupt Japan’s meticulously developed convenience store model, known as “konbini.”
Despite these challenges, Kaye regards Seven & i’s stock as a “buying opportunity” among Japanese companies, suggesting that it offers value relative to its global counterparts.
I am Aparna Sahu
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