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Convenience at a Cost: Circle K’s Bold Move on 7-Eleven
Deal or No Deal? Circle K’s Owner Aims to Hit the 7-Eleven Jackpot:
Background
Alimentation Couche-Tard (Couche-Tard), owner of Circle K, has made a non-binding share purchase offer to buy all outstanding shares of Seven & i Holdings (Seven & i), the owner of 7-Eleven.
Recent changes in Japan’s M&A guidelines, issued by the Ministry of Economy, Trade and Industry (METI), encourage boards to consider genuine offers, even from foreign buyers. These changes aimed to shift away from the previous culture whereby senior executives informally decided on proposals without consulting their board of directors.
Couche-Tard is among the first to take advantage of these new rules. In response, Seven & i has set up a special committee of non-executive board directors to examine the proposal.
If successful, it will be the largest foreign acquisition of a Japanese company. However, if Seven & i’s board rejects the offer, Couche-Tard may make a bid without Seven & i’s consent, potentially leading to a hostile takeover.
Potential hurdles
1. Board rejection
Although Japan’s new M&A guidelines encourage boards to consider all proposals, they don’t require boards to accept them.
The guidelines aim to prevent senior executives from making decisions without board consultation
Seven & i are working with Morgan Stanley to fend off the threat of a foreign-led acquisition. This indicates they might reject Couche-Tard’s offer. They could also use the ‘poison pill’ strategy, making the acquisition more expensive for Couche-Tard
For example, by increasing the cost of an acquisition by issuing discounted shares to shareholders.
Potential ways of mitigating this
If Seven & i’s board rejects the offer, Couche-Tard could go directly to shareholders to make its case. Pressure from activist investor, Value Act, may increase the likelihood of this.
2. Competition
The acquisition would give Couche-Tard a significant market share, as it would own both Circle-K and 7-Eleven, the largest convenience store chains in the United States.
Significant market share would allow Couche-Tard to control product prices and influence the labour market, employing over 200,000 people. Therefore, US antitrust regulators are closely monitoring the situation.
Potential ways of mitigating this
To satisfy US antitrust regulators, divestitures have been suggested. Couche-Tard might need to sell-off some stores, possibly between 750 and 1000 locations.
Instead of buying all of Seven & i’s shares, Couche-Tard could consider an asset purchase, acquiring specific parts of the business, such as Speedway, a chain that Couche-Tard have previously tried to acquire from Seven & i.
Related Concepts and Definitions:
Asset Purchase: When one company buys specific assets of another company.
Acquisition: One company buying another. The target may remain separate or be integrated into the acquiring company.
Board of Directors: A group of people elected by shareholders to set company policy and oversee management.
Hostile Takeover: A takeover opposed by the Target’s board. The acquirer may go directly to shareholders.
M&A: A term to refer to ‘mergers and acquisitions’
Poison Pill: A strategy to prevent hostile takeovers by making the deal less attractive.
Share Purchase: acquiring a company by buying its shares.
Target: The company being acquired.
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