Alimentation Couche-Tard Inc. has won access to Seven & i Holdings Co.’s confidential financial data after months of effort, a critical step in its bid to take over its Japanese convenience store rival.
The two companies confirmed late Wednesday that they signed a non-disclosure agreement allowing them to share private information. The pact will help them push forward talks on a potential transaction while facilitating due diligence and collaboration on their plans to exchange with regulators, Couche-Tard said in a statement.
“We appreciate the special committee of Seven & i engaging in substantive discussions regarding our proposal and providing access to diligence,” Couche-Tard Chief Executive Alex Miller said in the statement. “We look forward to working collaboratively with Seven & i in the interests of all stakeholders.”
The agreement is a significant development for Couche-Tard, whose executives have expressed frustration in recent weeks with what they called the “very limited” engagement from Seven & i, the owner of the 7-Eleven chain. Couche-Tard founder and chairman Alain Bouchard said in March his team had tried repeatedly to meet with Seven & i executives to talk about a deal but that “it is hard if not impossible.”
Couche-Tard’s current offer for Seven & i is worth about 7.4 trillion yen (US$52-billion). Mr. Bouchard has dangled the possibility of sweetening that amount if Seven & i opened its books for scrutiny.
The pact signed by the two companies also includes a standstill provision, Seven & i said in a separate statement. Such provisions typically restrict a buyer from taking certain actions while the parties negotiate a potential deal, such as purchasing shares or other things that could lead to a hostile takeover.
“The execution of the NDA is a positive step in the constructive engagement process” with Couche-Tard, said Paul Yonamine, chair of Seven & i’s independent special committee. “Unlocking significant value for shareholders and other stakeholders remains Seven & i’s top priority,” he said.
The Japanese company is pursuing a dual-track effort in its bid to create that value: Exploring a possible sale to Couche-Tard and going it alone as a more focused business. As part of plans to remain independent, it is selling its underperforming supermarkets and has announced plans to list a portion of its U.S. retail operation to fund a massive stock buyback.
Shares of Seven & i climbed as much as 3.5 per cent Thursday morning on the Tokyo Stock Exchange. But they’re still trading more than 20 per cent below Couche-Tard’s offer, suggesting investors believe a deal remains improbable.
News that a non-disclosure agreement has been signed “crystallizes that Couche-Tard is not ready to walk away, and that Seven & i remains highly committed to pursue its own value creation path,” RBC Capital Markets analyst Irene Nattel said in a note to clients. “There is far from any certainty that an agreement will be reached and approved by regulatory authorities,” she said, adding she believes there’s “a long road ahead.”
Seven & i has said Couche-Tard is downplaying the antitrust risks of a potential merger of the two retail giants, vowing it won’t be drawn into “limbo for multiple years” as regulators decide its fate. The Tokyo company has said its directors have always been open to a merger or go-private transaction, but only if there’s a high certainty that a deal will close.
Couche-Tard executives have said there is “a path to regulatory approval” in the United States. But Seven & i CEO Stephen Dacus has expressed doubts about that claim.
“They just kept saying ‘Trust us. We can do this. We’ll work it out,’ ” Mr. Dacus told The Yomiuri Shimbun newspaper in March. He said although Couche-Tard has experience in winning antitrust approval for previous takeovers, many of those have been small deals and nothing on the scale of this potential tie-up. The U.S. Federal Trade Commission will be “much stricter” in this case, he said.
The two companies have been working together with investment bankers on securing buyers for stores they might have to divest, including an estimated 2,000 North American locations. Private equity firms are seen by analysts as the likely buyers.
