Gist of it Having just returned from a four-day trip to Tokyo in connection with the proposed acquisition of the operator of 7-Eleven stores, Alimentation Couche-Tard executives are planning another visit to Japan soon.
"We don't have specific dates set in the calendar yet, but we plan to go back. Most likely before the end of the year," said Alimentation Couche-Tard CEO Alex Miller during an interview with La Presse late Wednesday.
Couche-Tard executives are working in particular to obtain a meeting with the president of Seven & i, which could not be achieved last week.
"We had informed their president that we were going there and had offered them a meeting, which was refused," says Alex Miller.
"We do, however, maintain a dialogue with them," adds Alex Miller, referring to the management of Seven & i. He specifies that, recently, the communication has been by email.
Alex Miller was in Tokyo from Tuesday to Friday last week with Founder and Executive Chairman Alain Bouchard, Advisor and former CEO Brian Hannasch and Chief Financial Officer Filipe Da Silva.
Positive for action
According to analyst Martin Landry of Stifel, if Couche-Tard manages to negotiate with Seven & i management, this scenario could lead to a short-term increase in Couche-Tard's stock.
"Investors will consider it more likely that a transaction will occur and may begin to price in the earnings per share accretion," he said in a note sent to clients late Wednesday.
Alex Miller says he and Alain Bouchard had several discussions with the chairman of the board of directors of Seven & i this year, including one in person. “That was in July,” says Alex Miller. “And there were a few phone conversations after that,” he adds.
"What we're really hoping for is a real commitment," Miller said. "Signing a confidentiality agreement so that we can do a due diligence process to arrive at what we believe is a win-win for stakeholders, customers, franchisees and shareholders of both companies."
More confident
Alex Miller said he is more confident today than before last week's trip that Couche-Tard will complete its acquisition of Japanese conglomerate Seven & i. "We accomplished a lot of what we wanted to accomplish by going there."
The aim of Couche-Tard's bosses in going to Japan was to meet people and make the company better known.
"We've had meetings with members of the media, shareholders, the Canadian ambassador, and we've visited a number of convenience stores. We've talked to a lot of people," says Alex Miller.
He said, however, that it was not possible to meet with representatives of the Japanese government. "They are in the middle of an election campaign. They are very busy there. But we are confident that we will be able to have conversations in the coming days and weeks."
PHOTO PROVIDED
Couche-Tard CEO Alex Miller
Seven & i revealed in August that it had received a takeover offer from Couche-Tard valued at US$40 billion (US$14.86 per share) and specified two weeks ago that the Laval company had sent it a revised proposal.
Couche-Tard's treasurer, Filipe Da Silva, accompanied Alex Miller on Wednesday for the interview granted to La Presse by videoconference.
Filipe Da Silva confirms that Couche-Tard's revised offer amounts to US$18.19 per share (approximately US$47 billion, or CAN$64 billion).
The Japanese conglomerate rejected the initial offer as insufficient, but has yet to publicly comment on the revised proposal.
Seven & i's management, however, announced earlier this month on the sidelines of the presentation of its most recent financial results its intention to reorganize its organizational structure in order to isolate its convenience store chain from the group's 31 other business units, a decision demonstrating the complexity of this conglomerate.
An institutional shareholder of Seven & i, the American investment firm Artisan Partners, called the plan presented by Seven & i "too little, too late" and urged management to negotiate with Couche-Tard.
Future projects
Seven & i called analysts and investors this Thursday for a meeting to take stock of its future projects.
Seven & i also announced this month that it is closing 444 7-Eleven convenience stores in North America in a move aimed at cutting costs and improving profitability.
Alex Miller admits he was surprised by the announced closures. “To be honest, I was surprised to hear that so many stores had been identified. But it’s a tough environment. It’s a tough situation right now for consumers,” he says.
Assessing the likelihood that the Japanese government will approve a deal (assuming Couche-Tard can reach an agreement with Seven & i) is difficult, BMO analyst Tamy Chen said in a note Tuesday. She noted that Japan revised its M&A rules last year and any review is likely to be lengthy (i.e., more than a year).
"It is possible that Couche-Tard will receive approval from the Japanese government, but under several conditions," she said.
"The key is whether the Japanese company has operations and/or infrastructure that are essential to Japan's national interests."
She says convenience stores and supermarkets are important channels for daily food supply, which can be considered essential. “Convenience stores facilitate the provision of various banking services and this technological infrastructure can be considered essential.”
Couche-Tard's acquisition of Seven & i would create the largest owner and operator of convenience stores in the highly fragmented U.S. market.
Couche-Tard's market share in the United States is estimated by analysts at 4 to 5% and that of 7-Eleven at around 8%. The combined share would therefore be 12 to 13%.