Alimentation Couche-Tard Inc.’s takeover bid for the parent company of convenience store chain 7-Eleven is essentially the most ambitious idea yet from an organization whose business model relies on closing one deal after one other.
Couche-Tard confirmed on Monday that it had made a “friendly, non-binding offer” to Japan’s Seven & i Holdings Co., which was valued at around $38 billion in Tokyo on Monday. There is not any guarantee that an agreement could be reached, the corporate warned – and there are significant obstacles to completing such a big deal.
If the Canadian company pulls it off, nonetheless, it might be a dream come true for founder and CEO Alain Bouchard, who has had his eye on 7-Eleven for many years. Bouchard first approached the Japanese company in 2005 to broker a cope with the corporate’s U.S. operations, based on a biography published several years ago. But the concept was quickly scrapped.
Bouchard moved on, targeting a series of convenience store and gas station deals within the U.S. and Europe before finally setting his sights on Carrefour SA in 2021. Negotiations over a $20 billion offer for the supermarket chain foundered within the morass of French politics, but last yr the corporate landed a smaller deal in Europe. Acquisition around 2,200 branches of TotalEnergies SE for 3.1 billion euros (3.4 billion dollars).
During a presentation in Phoenix, Arizona, last yr, CEO Brian Hannasch and other executives made it clear to investors and analysts that they were removed from there. They laid out extensive plans to go looking the United States, Europe, Latin America and Southeast Asia for acquisition targets.
“We are experts in completing and integrating mergers and acquisitions globally,” the corporate said in a document presented to investors. “We have the balance sheet to consider very large deals that few others can compete in.”
If a takeover were to go ahead, it might be the most important foreign acquisition by a Canadian company in history, based on data compiled by Bloomberg.
“There was a big ambition to go to Asia,” said Bloomberg Intelligence analyst Diana Rosero-Pena. Couche-Tard has lower than 1 percent market share within the region, in comparison with 31 percent for Seven & i, she said.
A deal could possibly be price as much as $86 billion, she wrote, based on 11.5 times earnings before interest, taxes, depreciation and amortization. Some analysts said Monday that Couche-Tard could afford the acquisition but would likely finance it with a combination of debt and equity.
Deal-making is in the corporate’s blood. It all began within the Eighties when Bouchard opened a store in a Montreal suburb, starting with a single convenience store often called supermarket within the French-speaking Canadian province.
He first tried to consolidate in Quebec and Canada – lots of of stores within the provinces – after which opened up international markets. Today, the corporate has around 16,700 stores in 31 countries and territories; around 75 percent of those locations have been added through acquisitions.
The owner of Circle K sees much more opportunities within the US market. Less than an hour after confirming its offer to Seven & i, the corporate announced the acquisition of 270 GetGo retail and fuel station locations from Pittsburgh-based Giant Eagle Inc. for an undisclosed amount.
Couche-Tard is now the second-largest U.S. operator with over 7,100 stores, representing about 5% of convenience stores, and one other 2,100 in Canada. The acquisition of 7-Eleven’s 13,000 stores in those two countries could raise competition concerns.
“We expect some degree of divestment will be necessary in the US industry, but Couche-Tard would want to retain the Speedway assets,” Raymond James analyst Bobby Griffin said in a note to clients. Seven & i suggested Couche-Tard in a auction for Marathon Petroleum Corp.’s Speedway gas stations in 2020.
A Couche-Tard spokesman declined to comment beyond the corporate’s statement Monday morning. At the corporate’s last quarterly earnings call in late June, Hannasch told analysts that he had quite a few deal ideas on the table, “a mix of Europe and North America and different sizes.”
“We will remain disciplined, we are committed to that,” he said, “but we believe we can grab some opportunities in the coming quarters.”
CEO change
Couche-Tard has had only two CEOs in its history – Bouchard, who’s one in all Canada’s richest individuals with a fortune of around $8 billion, and Hannasch. That will change on September 6, when Chief Operating Officer Alex Miller takes the helm. Hannasch plans to stick with the corporate as a special advisor for the subsequent few years and give attention to M&A.
Couche-Tard supplies fuel, food, snacks and tobacco to tens of millions of consumers on daily basis. About three-quarters of its revenue comes from the fuel business, and that is where size matters: the corporate is thought for showing its negotiating power to attain higher margins in gasoline trading.
In recent years, the corporate has developed a method to extend its store sales with fresh foods reminiscent of hot sandwiches, pizza, chicken and other dishes. Its goods and services business generates gross margins 3 times higher than its fuel business.
