Bid for 7-Eleven owner shows Japan's governance gains, says Suntory CEO Niinami

A $39 billion Canadian takeover bid for 7-Eleven's owner, Seven & i Holdings, has left CEOs "nervous" that their companies may face similar challenges. This significant bid indicates a shift in Japan's corporate governance and has sparked a debate about the country's stance on foreign acquisitions.

Tensions Rise as Couche-Tard's Bid is Rejected

On September 11, 2024, Seven & i Holdings announced that it had rejected a takeover bid from Canadian retail giant Alimentation Couche-Tard. The bid, valued at approximately $38.6 billion, was deemed by Seven & i to "grossly undervalue" the company. Couche-Tard's proposal, offering $14.86 per share in cash, was considered "opportunistically timed" and insufficient, according to the letter sent by Stephen Dacus, head of Seven & i’s special committee.

Despite the rejection, Seven & i left the door open for future negotiations, stating that they would consider proposals that fully recognize the company’s stand-alone intrinsic value and address regulatory concerns. Couche-Tard, however, emphasized its confidence in financing and completing the takeover, with CEO Brian Hannasch expressing optimism about the deal's potential.

Regulatory Hurdles and Strategic Concerns

The potential acquisition faces significant regulatory hurdles in the United States, where both companies have substantial operations. Analysts estimate that over 1,000 stores might need to be divested to satisfy U.S. antitrust authorities. Seven & i also expressed concerns about Couche-Tard’s lack of detailed plans for addressing potential antitrust issues.

Japan's New Corporate Governance

This takeover bid demonstrates a shift in Japan's corporate governance, which has been evolving over the past decade. Japan's government has been actively promoting reforms to enhance the competitiveness of its businesses globally. The designation of certain companies as "core" businesses, which would make them more difficult to acquire, is an example of these efforts.

Impact on the Market

The rejection of the bid by Seven & i Holdings has caused a reaction in the market. Seven & i’s shares on the Tokyo Stock Exchange saw a 1.4% decline on the day of the announcement. However, the stock has generally maintained gains since the takeover approach was first disclosed on August 19. Industry experts anticipate that Couche-Tard may return with an improved offer, although the regulatory challenges remain significant.

CEOs React to the News

The news has left CEOs in Japan nervous about the future of their companies. The potential for foreign acquisitions to undervalue Japanese firms has sparked a debate about the country's stance on such deals. The evolution of Japan's corporate governance and the increasing competitiveness of its businesses are expected to continue shaping the country's business landscape.

Strategic Partnerships and Restructuring

Seven & i Holdings has been actively restructuring its business to strengthen its U.S. operations and streamline its Japanese business. The company recently announced the closure of some Ito-Yokado supermarkets in Japan and the sale of its Sogo & Seibu department stores to Fortress Investment Group for $1.5 billion. This strategic approach has helped the company maintain its dominance in the global convenience store market, despite a slight decline in annual sales and profits.

Future Prospects

The potential acquisition of Seven & i Holdings would combine Couche-Tard’s strong North American and European presence with Seven & i’s dominance in Asia, creating a retail powerhouse with annual revenue exceeding $150 billion and more than 100,000 stores worldwide. While the regulatory challenges are significant, both companies remain optimistic about the future prospects of a combined entity.

Conclusion

The rejection of Couche-Tard's takeover bid by Seven & i Holdings highlights the evolving corporate governance landscape in Japan. The bid, valued at $38.6 billion, was deemed to undervalue the company and carried significant regulatory risks. Despite the rejection, both companies are expected to continue exploring opportunities for a potential deal. The outcome of this bid has far-reaching implications for the convenience store industry and Japan's business environment.: https://retail-insider.com/bulletin/2024/09/7-eleven-owner-rejects-couche-tards-takeover-bid/: https://fortune.com/asia/2024/09/06/seven-and-i-holdings-rejects-takeover-bid-alimentation-couche-tard-grossly-undervalues/: https://www.reuters.com/markets/deals/couche-tard-approach-again-seven-i-after-385-billion-offer-rejection-bloomberg-2024-09-08/: https://globalnews.ca/news/10740297/couche-tard-disappointed-7-eleven-owner-bid/