A potential $86 billion deal for 7-Eleven would fulfill a decades-long dream for a Canadian founder

Couche-Tard confirmed on Monday that it had made a “friendly, non-binding offer” to Japan’s Seven & i Holdings Co., which had a stock market value of about $38 billion at Monday’s close in Tokyo. There is no guarantee a deal can be reached, the company warned – and there are significant barriers to closing such a massive deal.

But if the Canadian company can pull it off, it would be a dream come true for founder and executive chairman Alain Bouchard, who has been eyeing 7-Eleven for decades. Bouchard made his first approach around 2005, seeking a deal with the Japanese company for its US business, according to a biography published several years ago. The idea was quickly shot down.

Bouchard continued, eyeing a series of convenience store and gas station deals in the U.S. and Europe before finally setting his sights on Carrefour SA in 2021. Negotiations on a $20 billion bid for the supermarket chain died in the mire of French politics, but for the last time. last year, the company closed a smaller deal in Europe, acquiring about 2,200 stores from TotalEnergies SE for €3.1 billion ($3.4 billion).

During a presentation in Phoenix, Arizona last year, Chief Executive Brian Hannasch and other executives made it clear to investors and analysts that they were nowhere near ready. They outlined broad plans to look in the US, Europe, Latin America and Southeast Asia for acquisition targets.

“We are experts in closing and integrating mergers and acquisitions across the globe,” they said in a document presented to investors. “We have the balance sheet to consider very large deals where only a few others can play.”

If a takeover is completed, it would be the largest foreign acquisition ever by a Canadian company, according to data compiled by Bloomberg.

“There was a lot of ambition to go into Asia,” said Bloomberg Intelligence analyst Diana Rosero-Pena. Couche-Tard has less than 1 percent market share in the region, compared with 31 percent for Seven & i, she said.

A deal can be valued at $86 billion, she wrote, based on a multiple of 11.5 times earnings before interest, taxes, depreciation and amortization. Some analysts said Monday that Couche-Tard can afford the acquisition but will likely finance it with a mix of debt and equity.

Offers are in the company’s DNA. It all started in the 1980s when Bouchard set up shop in a Montreal suburb, starting with a single convenience store known as repairman in the French-speaking Canadian province.

He first sought to consolidate in Quebec and across Canada—adding hundreds of stores in the provinces—and then moved into international markets. Today it has approximately 16,700 stores spread across 31 countries and territories; approximately 75% of these locations were added through acquisition.

Circle K’s owner still sees more opportunities in the US market. Less than an hour after confirming its proposal to Seven & i, the company announced the acquisition of 270 GetGo grocery and retail locations from Pittsburgh-based Giant Eagle Inc. for an undisclosed amount.

Couche-Tard is now the second-largest operator in the U.S., with more than 7,100 locations, representing about 5 percent of convenience stores, and another 2,100 in Canada. The acquisition of 7-Eleven’s 13,000 locations in these two countries has the potential to raise competition concerns.

“We would also expect some level of divestitures to occur in the US industry, but Couche-Tard would like to retain the Speedway assets,” Raymond James analyst Bobby Griffin said in a note to clients. Seven & i beat out Couche-Tard in a bid for Marathon Petroleum Corp.’s Speedway gas stations. in 2020.

A Couche-Tard spokesman declined to comment beyond the company’s statement Monday morning. In the company’s most recent quarterly call in late June, Hannasch told analysts that several deal ideas had come across his desk, “a mix of both Europe and North America and a mix of sizes.” .

“We’re going to stay disciplined, we’re committed to that,” he said, “but we’d like to think we can get some opportunities in the coming quarters.”

CEO change

Couche-Tard has had only two CEOs in its history – Bouchard, who is one of Canada’s richest men with a fortune of about $8 billion, and Hannasch. That will change on September 6, when COO Alex Miller takes the helm. Hannasch plans to remain with the organization as a special advisor for the next two years, with a focus on mergers and acquisitions.

Couche-Tard serves millions of customers a day with fuel, food, snacks and tobacco. About three-quarters of its revenue comes from fuel, where scale matters: The company is known for flexing its bargaining muscle to generate higher margins on gasoline.

In recent years, the company has advanced a strategy to improve in-store sales with fresh food products such as hot sandwiches, pizza, chicken and other dishes. Its goods and services businesses enjoy gross margins three times higher than those of its fuels business.

Recommended newsletter: High-level information for high-powered executives. Subscribe to the CEO Daily newsletter for free today. Subscribe now.