Circle K owner ‘confident’ he can close deal for 7-Eleven owner

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Alimentation Couche-Tard Inc.’s CEO said the company is confident it can close in a blockbuster bid to take over 7-Eleven-owner Seven & i Holdings Co. Ltd.

Alex Miller, who is set to replace outgoing CEO Brian Hannasch, said he is confident in the company’s ability to finance and complete the proposed deal.

“We see a strong opportunity to grow together, enhance our offerings for our customers and deliver compelling results for our shareholders, employees and key constituencies of both companies,” Miller told analysts on a conference call Thursday.

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Laval, Que. The base of the store chain Couche-Tard revealed in mid-August that it has made a friendly, non-binding offer to acquire all outstanding shares in Seven & i, which said it will assemble a special committee of a board. director to review the offer.

Citing unnamed sources, Asian business outlet Nikkei reported that Seven & i planned to notify Couche-Tard that the price offered was too low. The Japanese company will also mention the remaining regulatory issues in a letter to Couche-Tard’s board, the report said.

Seven & i declined to comment.

In addition to the global store chain 7-Eleven, Seven & i owns supermarkets, food manufacturers, household goods retailers and financial services companies.

Analysts have doubted whether the two companies can reach a deal because they believe Japanese regulators will be tough and could force Couche-Tard to divest some of its assets.

“Although there are reforms in the country to make takeovers easier, most Japanese companies are cautious and resistant to change. This includes Seven & i, whose complex operating model also hinders deals,” said Neil Saunders, managing director of GlobalData, in August email.

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“Unless Alimentation Couche-Tard has a large enough premium, it will likely be rejected.”

While Miller told analysts that he would not take questions about the company’s bid for Seven & i, he said Couche-Tard has “deep respect” for the takeover target and its franchisee network, operating model and brand.

Miller’s comments come as Couche-Tard is in expansion mode.

It closed a deal to buy certain European retail assets from French oil giant TotalEnergies SE in January.

On the same day it announced the Seven & i offer, Couche-Tard said it signed an agreement to buy GetGo Cafe stores from supermarket retailer Giant Eagle Inc.

Terms of the GetGo deal, which is expected to close next year, were not disclosed.

Like Couche-Tard, GetGo has gas stations and shops, but it also has a heavy focus on made-to-order food, which Miller said is “very popular” and offers lots of opportunities for the company.

“We’re clearly seeing some very nice reverse synergies with the acquisition,” he said.

GetGo has about 3,500 employees and operates about 270 retail and gas stations in Pennsylvania, Ohio, West Virginia, Maryland and Indiana.

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Meanwhile, Couche-Tard covers 31 countries and more than 16,700 stores. If it can wrangle Seven & i, the deal will add 85,800 stores to its empire.

“When investors focus on the potential Seven & i transaction, we see the key to Alimentation Couche-Tard as a compelling investment lies in the performance of the existing footprint and the ability of Alimentation Couche-Tard to drive earnings / strong cash flow despite the challenging background,” said Irene Nattel , RBC Capital Markets analyst, in a note to investors Thursday.

The company’s first-quarter net earnings attributable to shareholders were released Wednesday. It reported US$790.8 million, down from US$834.1 million in the same quarter last year.

Earnings for the period ended July 21 totaled 83 US cents per share, down from 85 US cents per share last year, when analysts had expected earnings of 84 US cents, according to LSEG Data & Analytics.

Revenue totaled US$18.3 billion, up from US$15.6 billion last year.

Miller said “consumers have been stretched,” a phenomenon retailers have been lamenting for months because interest rates are slowly falling and the cost of many household goods remains high.

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Cut in Couche-Tard in the form of customers who make fewer visits and spend less when they shop in the chain.

“Fuel is a good example,” he said.

“In fact we have higher traffic in the front, but the average content is down to a level that leads to the same store volume being negative.” (Forecourts are the areas in front of the main store buildings.)

The company is also seeing more shoppers opting for private label products, which tend to be more affordable, and high interest in value and bundled meals offered between $3 and $5 in the U.S.

While the chain has always offered promotions, Miller said, the company will reduce the number of promotions and make them more targeted.

This report by The Canadian Press was first published on September 5, 2024.

Company in this story: (TSX:ATD)

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