7-Eleven’s parent rejects takeover bid, says bid ‘grossly undervalues’ company

Seven & i Holdings rejected the takeover offer from the Canadian convenience store operator Diet Couche-Tardsaying the offer is “not in the best interests” of shareholders and stakeholders.

In a statement to the Tokyo Stock Exchange, 7-Eleven’s owner revealed that Couche-Tard has offered to acquire all of Seven & i’s outstanding shares for $14.86 per share.

Stephen Dacus, chairman of the special committee that Seven & I formed to evaluate Couche-Tard’s proposal, called the proposal “opportunistically timed and grossly undervalues ​​our stand-alone path and the additional paths we see for to realize and unlock shareholder value in the near- to medium-term.”

In April, Seven & i announced a restructuring plan for the company, aimed at increasing 7-Eleven’s presence globally, as well as exiting the underperforming supermarket business.

Dacus wrote that even if Couche-Tard is increasing its bid “very significantly,” the proposal does not take into account the “multiple and significant challenges” the takeover would face from U.S. antitrust agencies.

“Beyond your simple statement that you do not believe a combination would have an unfair impact on the competitive landscape and that you would ‘consider’ potential divestitures, you have provided no indication of your views on the level of divestitures that would be necessary or how they will be carried out,” he wrote in a letter that appeared to be addressed to ACT president Alain Bouchard, which was published in a Tokyo Stock Exchange filing.

He also pointed out that Couche-Tard’s proposal did not indicate any timeline for clearing regulatory hurdles or whether the company is “prepared to accept all necessary actions to obtain regulatory authorization, including through litigation with the government.”

Dacus said Seven & i was open to sincerely considering proposals that were in the best interests of the company’s stakeholders and shareholders, but warned it would also resist one that “deprives our shareholders of the intrinsic value of the company or that does not address specifically the very real regulations. concerns.”

Speaking to CNBC’s “Squawk Box Asia” shortly before the response was filed Friday, Ben Herrick, associate portfolio manager at Artisan Partners, said the Couche-Tard offer “underlines that this management team and the board of administration have not done everything in their power to increase the corporate value of this organization.”

Artisan Partners is a US fund that owns just over 1% stake in Seven & i. In August, the firm reportedly asked Seven & i Holdings to “seriously consider” the takeover offer and solicit bids for the Japanese subsidiaries of the company “as soon as possible”.

Herrick explained that Artisan asked Seven & i to consider the offer because the fund believes overseas capital allocation has been overlooked.

He said Seven & i’s convenience store business did not need much change, but said there was a “huge opportunity” for international licensees operating outside the United States.

“You have over 50,000 stores or about 50,000 stores that generate about $100 million or a little over $100 million in operating profit for the company. So I think there’s a big mismatch there,” he said.

Herrick also believes Seven & has been slow to adopt changes due to insufficient oversight and accounting.

“We really need the company to implement its plan at a faster pace here. So (Seven and I, President Ryuichi) Isaka launched his 100-day plan in 2016 to reform (the general merchandise store) Ito-Yokado. And we’re approaching our 3,000th day here, so I don’t think speed has been a big part of this culture and that needs to change,” he stressed.

On Monday, Richard Kaye, a portfolio manager at independent asset management group Comgest, disagreed in an interview with CNBC’s “Squawk Box Asia,” saying: “I don’t think there would be a case for radical reform to be made by a foreigner. acquirer.”

The company does a “phenomenal job” of logistics and product innovation, and “I think it’s very hard to imagine that this could be done much better,” he added.