Circle K owner still wants friendly deal with 7-Eleven after rejecting $39 billion offer

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Canadian company Alimentation Couche-Tard has said it remains “strongly focused” on pursuing a friendly takeover of Seven & i Holdings, despite the Japanese convenience store giant rejecting a preliminary offer of nearly $39 billion last week.

Couche-Tard, owner of the convenience store chain Circle K, said on Monday that it was ready for “cooperative and friendly talks” with Seven & i to reach a deal that would represent the largest takeover of a Japanese company by a foreign group.

Seven & i shares, which had risen since Couche-Tard’s offer was announced in mid-August, rose nearly three percent in Tokyo on Monday.

The Japanese owner of the 7-Eleven chain has a market capitalization of 5.5 trillion yen ($39 billion), slightly higher than Couche-Tard’s valuation of $38.7 billion.

Couche-Tard’s statement comes after Seven & i explained last week why a special committee set up to examine the offer had unanimously rejected the Canadian group’s offer, saying it was “opportunistically timed” and significantly undervalued the Japanese group.

Seven & i stressed that a more in-depth discussion is needed on the central role of 7-Eleven stores in Japan. The stores are considered part of the social infrastructure that provides supplies and basic services in the event of an earthquake or other natural disaster.

In addition, the proposal did not adequately take into account the potentially significant competition problems that a merger would entail in the United States.

After the Tokyo stock market closed on Monday, Seven & i said it remained “open for serious discussions should [Couche-Tard] put forward a proposal that fully recognises Seven & i’s standalone intrinsic value and addresses the very real regulatory concerns raised by the Select Committee.”

Investors had interpreted Seven & i’s statement last week as meaning that the possibility of further talks remained open if Couche-Tard came back with a higher offer.

“We are disappointed by 7&i’s refusal to engage in friendly talks,” said Couche-Tard. “We are very confident that we can create added value for 7&i shareholders through joint discussions.”

The Canadian group said its request to its consultants to work with Seven & i’s consultants had been rejected, as had its offer to enter into a confidentiality agreement with the Japanese group “to enable both sides to exchange information and thus create added value”.

Couche-Tard’s offer of $14.86 per share in cash gave Seven & i an estimated enterprise value of nearly $60 billion, according to analysts.

Couche-Tard said the company remains “very confident” that it has “sufficient capacity to cash finance the transaction.”

In response to Seven & i’s competition concerns, Couche-Tard said the highly fragmented U.S. convenience store market – where the two groups together represent more than 10 percent of stores – would allow them to “jointly consider divestments that may be necessary to obtain regulatory approvals.”

Couche-Tard also acknowledged that Seven & i had played “an important role in Japan’s emergency response” and said the company was determined to “continue to perform this function.”