Couche-Tard Urges 'Full Engagement' With Seven & i Holdings
LAVAL, Quebec — Alimentation Couche-Tard Inc. stressed its respect for 7-Eleven Inc.'s parent company Seven & i Holdings Co. Ltd. and emphasized its commitment to reaching a merger agreement while also expressing disappointment in Seven & i's "very limited engagement" in a March 10 letter to shareholders.
"For many years, we have firmly believed that there is a unique strategic fit between Couche-Tard and Seven & i, and that we can achieve significantly more together than each of our companies can achieve individually, including accelerating the global growth of the iconic 7-Eleven brand and strengthening the Seven & i business in many parts of the world," Couche-Tard wrote. "We also firmly believe that a combination provides an opportunity for shareholders and stakeholders of both companies to realize significant value."
However, Seven & i has focused only on the path to U.S. regulatory approval rather than enter into full discussions, according to Couche-Tard.
The global retailer's comments came one day after Seven & i announced the companies had agreed to mutually assess the viability of a divestment process in the event of a merger, a process that includes defining operational, management and financial characteristics of the group of stores to be sold and identifying potential buyers, as Convenience Store News previously reported.
In its letter, whose purpose was to provide stakeholders with a "comprehensive and transparent update," Couche-Tard stated that it believes its acquisition proposal provides clear economic value in contrast with Seven & i's "repeatedly revised" plan.
"The new multiyear plan relies on a future U.S. IPO [initial public offering], a long-dated capital return plan, and a turnaround in performance of its convenience stores — all of which come with material uncertainty with respect to delivering value to shareholders," Couche-Tard wrote.
Upon entering into a definitive agreement, Couche-Tard would plan to have fully committed financing for the entire purchase price in place, the retailer continued. It intends to fund the transaction with a with a combination of debt and equity, sized with intention to retain strong investment grade credit ratings.
Couche-Tard also expressed confidence in achieving a level of leverage that would allow it the operational and financial flexibility to continue investing in both the Seven & i and Couche-Tard businesses.
U.S. Regulatory Approval & Operations in Japan
Couche-Tard highlighted its successful track record of working with regulators in the United States and elsewhere, and expressed its firm belief that the company sees a clear path to regulatory approval.
"The U.S. convenience store market is highly fragmented, with over 150,000 stores nationally. Both Couche-Tard's and Seven & i's stores operate in the U.S. in competition with a wide array of brick and mortar, and online food and merchandise providers," it wrote. "Additionally, Seven & i and Couche-Tard largely operate in complementary markets across the U.S."
The company responded briefly to Seven & i's perspective on the process of obtaining U.S. regulatory approval, noting that "this is not the view of Couche-Tard, or our regulatory counsel, and we look forward to working with the regulatory authorities to reach alignment on an appropriate divestiture package."
Additionally, Couche-Tard commended the "world-leading" 7-Eleven convenience operations in Japan, adding that it believes it can learn a considerable amount from 7-Eleven Japan while bringing extensive operational expertise and scaled global operations to the tables. It also does not intend to make store closures or job cuts.
[Read more: Couche-Tard Makes Moves in Japan]
"We also understand that retention and engagement of leadership, employees and franchisees will be critical to the success of any transaction, and we have a well-developed plan for governance and management incentives," Couche-Tard wrote.
The company concluded its letter by stating that it is time for full engagement from Seven & i.
"We have reiterated several times over the past few months that we intend to be friendly and persistent in pursuing a transaction, which we believe is in the best interest of all stakeholders. We have done that in the face of significant frustration and distraction," the letter read. "We look forward to fulsome engagement with Seven & i so that we can reach definitive terms and move forward with a transaction that is in the best interest of all stakeholders."
Laval-based Alimentation Couche-Tard operates in 31 countries and territories, with more than 16,800 stores, of which approximately 13,000 offer road transportation fuel. With its well-known Couche-Tard and Circle K banners, it is one of the largest independent convenience store operators in the United States and it is a leader in the convenience store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, Belgium, as well as in Ireland.
Seven & i subsidiary 7-Eleven Inc. operates, franchises and/or licenses more than 13,000 stores in the United States and Canada. In addition to 7-Eleven stores, it operates and franchises Speedway, Stripes, Laredo Taco Co., and Raise the Roost Chicken and Biscuits locations.