Potential buyers for a package of US convenience stores from Seven & i Holdings Co. and Alimentation Couche-Tard Inc. have until the end of the month to express their interest and show they can overcome antitrust concerns, as the talks continue about a deal between the companies, according to people familiar with the matter.
Any initial expressions of interest — to be received by March 31 — will need to preserve competition in the US market, the people with knowledge of the discussions said. Some potential buyers are engaged in the process and have signed non-disclosure agreements.
Canada’s Couche-Tard, the parent company of the Circle K chain, has made a nearly US$50 billion proposal to acquire its long-time Japanese rival, which owns 7-Eleven. Seven & i has so far fended off the approach with an ultimately futile management buyout plan and a reset of its business, but has at the same time agreed to consider Couche-Tard’s bid, provided there are some guarantees over antitrust issues.
Seven & i and Couche-Tard are currently in talks on the potential sale of US stores to deal with potential scrutiny from competition authorities. Their combined network of more than 20,000 outlets would be almost eight times bigger than their next competitor, Casey’s General Stores Inc.
Seven & i and Couche-Tard declined to comment.
Shares of Couche-Tard rose 0.7 per cent in early trading in Toronto on Thursday morning, following a 6.3 per cent jump on Wednesday. The company has a market capitalization of about $68 billion (US$47 billion).
The administration of US President Donald Trump has already challenged two deals, including Hewlett Packard Enterprise Co.’s US$14 billion takeover of Juniper Networks Inc., bucking Wall Street’s expectations of greater permissiveness on mergers. The new chair of the Federal Trade Commission, Andrew Ferguson, told Bloomberg News this week that he would try to block any deal he considers anti-competitive and that “consumers and laborers suffer in markets short of things that just affect short-term price and output.”
‘Significant’ Hurdles
If Couche-Tard’s takeover bid succeeds, it would be reviewed by the FTC, which splits antitrust enforcement in the US with the Justice Department and reviews retail and gas station mergers. And while the agency is not currently investigating Couche-Tard’s proposal, it is monitoring the situation. Last week, lawyers for Seven & i met with FTC staff at the commission’s request to update them on the potential deal’s progress, some of the people said.
Both Couche-Tard and 7-Eleven have been involved in previous mergers where the FTC required divestitures and later accused the companies of violating the settlements – an indication the agency has continued to monitor both firms even after the deals.
“A combination of Seven & i and Alimentation Couche-Tard would face significant antitrust hurdles,” Seven & i board directors Paul Yonamine and Meyumi Yamada wrote in a public letter earlier this month. Both companies have worked on putting together a divestiture package of more than 2,000 overlapping stores.
“As responsible stewards of our shareholders’ capital, we will not blindly enter a transaction with no clear path to closing that could leave our company in a value destructive limbo for multiple years,” they said. The failed US$26.4 billion takeover of US supermarket company Albertsons Cos. by Kroger Co., after the FTC ruled it would lessen competition, should serve as an example, they argued. It demonstrated the “risks of consumer-facing retailers looking to divest thousands of stores without a buyer that is market-tested and well positioned to preserve the competitive landscape.”
Couche-Tard responded with a statement saying there is a “clear path to regulatory approval in the US,” pointing out that the US convenience store market is “highly fragmented, with over 150,000 stores nationally.”
RBC Capital Markets analyst Irene Nattel said in a note to investors she expects Couche-Tard to “continue the courtship over the next eight weeks until the Seven & i annual general meeting on May 27, potentially reassessing thereafter depending on the outcome of the shareholder meeting.”
Josh Sisco, Mathieu Dion and Leah Nylen, Bloomberg News
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