Alimentation Couche-Tard, the Canadian multinational operator of convenience stores, has made a preliminary takeover offer for Seven & i Holdings, the Japanese retail conglomerate that owns the 7-Eleven brand. This move comes three years after Couche-Tard's unsuccessful bid for French retailer Carrefour, which was blocked by the French government on food security grounds.
The news of the proposal sent Seven & i's shares soaring to their daily maximum of 23%, valuing the company at a near-record high of $38 billion. This sharp market reaction underscores the potential value investors see in the deal, which could potentially become the largest acquisition of a Japanese company by an overseas firm.
Seven & i's CEO, Ryuichi Isaka, now faces a crucial decision. Since 2021, Isaka has been in conflict with ValueAct Capital, an American investment company known for activist investing. ValueAct successfully pushed for the separation of the CEO and chair roles at Seven & i and sought a spinoff of the convenience store unit. However, they eventually supported the company's April 2024 decision to consider an initial public offering (IPO) of its superstore business.
Despite this apparent alignment between Isaka and ValueAct, Seven & i's stock has underperformed. Over the past two years, the company's total returns were a disappointing negative 1%, compared to the positive 42% of the Topix Index, which tracks companies listed on the First Section of the Tokyo Stock Exchange. Even after the recent rally, Seven & i's stock trades at around 8 times forecast 2025 EBITDA, significantly below the 13 times multiple of domestic rival Pan Pacific and the 12 times average of global peers including Couche-Tard and Walmart.
The potential acquisition has broader implications for Japan's economic landscape. The country has been implementing corporate governance reforms since 2013 to attract foreign investment and drive shareholder value, as part of efforts to revitalize its $4 trillion economy, the third-largest in the world by nominal GDP. Japanese policymakers have cracked down on certain M&A defense tactics, and Seven & i has promised that a special committee will evaluate Couche-Tard's proposal alongside the company's other options.
"Our board of directors has formed a special committee to review the proposal, the company's stand-alone plans, and other alternatives, following which a response will be made to the Canadian firm."
However, the sale process, if initiated, may not necessarily favor an outsider. This was evident in the case of Toshiba Corporation, where foreign investors who had fought for years to reform the conglomerate ultimately ceded to local owners in 2023. The response of Seven & i to Couche-Tard's approach will likely set a new precedent for mega-deals in Japan and test the country's commitment to fair M&A practices.
As the situation unfolds, all eyes will be on how Seven & i navigates this potential deal, balancing the interests of shareholders, employees, and the broader Japanese market. The outcome could have far-reaching implications for future foreign investments in Japanese companies and the country's ongoing efforts to boost its economic growth through increased corporate value and international competitiveness.