The Japanese owner of convenience store chain, 7-Eleven, rejected a previous acquisition proposal from Canadian retail giant Alimentation Couche-Tard (ACT), citing a low valuation and regulatory concerns.
In a publicly disclosed letter, published on September 6, Seven & i Holdings said that the board of directors has unanimously concluded that the proposal is not in the best interest of the company’s shareholders and other stakeholders, and that they have decided to reject it.
“We are open to sincerely consider any proposal that is in the best interests of 7&i shareholders and other stakeholders,” Stephen Dacus, chairman of the board, noted in the letter. “However, we will resist any proposal that deprives our shareholders of the company’s intrinsic value or that fails to specifically address very real regulatory concerns,” he added.
The low valuation failed to reflect the value of the company’s business was cited as one of the major reasons in the letter. The letter revealed that the buyout proposal from ACT, the Canadian owner of convenience store chain Circle K, offered to buy out Seven & i for $14.86 per share in cash.
A special committee established to review the proposal concluded that the ask is “opportunistically timed and grossly undervalues” that the company seeks to realise in the near- to medium-term.
According to calculations, ACT’s pricing values Seven & i at around $38.7 billion. This amount was around 25% over Seven & i’s market capitalisation of around $31 billion, when the proposal was first made.
Regulatory hurdles
Additionally, the letter pointed out that the transaction might face regulatory hurdles from watchdogs such as the US competition law enforcement agencies.
It highlighted that other than a “simple assertion that you do not believe that a combination would unfairly impact the competitive landscape”, the proposal did not include further details towards a smooth closing. These include information such as the level of divestitures required, a timeline to clear regulatory hurdles, and whether the acquirer would be prepared to “take all necessary action” to obtain such clearance.
The Japanese company confirmed less than a month ago that it received a confidential acquisition proposal from ACT. If closed, the transaction would mark the biggest foreign takeover of a Japanese-listed company,
A major merger of two convenience store brands, 7-Eleven and Circle K, would create anti-competition concerns, which were raised when the proposal was revealed. In a market such as Hong Kong, where both brands remain dominant in the city, a merger would potentially harm consumers.
The letter said that Seven & i is open to hold "sincere discussions" if the issues around valuation and regulations were addressed.
Response from Couche-Tard
In an open letter from Couche-Tard on September 8, the firm responded to some of Seven & i's concerns.
The letter, which was written in French, said: "We believe that, by working together, we can reach and complete a mutually acceptable transaction."
