Circle K operator makes pitch for 7-Eleven owner

Bloomberg and staff reporter

Circle K operator Alimentation Couche-Tard made a proposal to take over much larger rival and 7-Eleven owner Seven & i in what would be the biggest foreign takeover of a Japanese company.

A merger would create the world's top operator of roughly 100,000 convenience stores.

Valued at the equivalent of US$31 billion (HK$241 billion) before news of the offer emerged, Seven & i shares jumped 23 percent yesterday.

The company said the bid was preliminary and non-binding, without disclosing terms. A committee of independent outside directors will make a "prompt, careful and comprehensive review of the proposal," Seven & i said in a statement.

Although Couche-Tard is smaller than Seven & i, with about 14,000 stores compared with more than 85,000 for the Japanese retailer, the Canadian company enjoys a bigger valuation of about US$58.5 billion.

In Hong Kong and Macau, Circle-K owns over 350 stores, while 7-Eleven has more than 900 stores, according to their official websites.

Foreign takeovers of Japanese companies are extremely rare, but recent changes in guidelines for merger and acquisition proposals, and activist investors pushing companies to boost value - including at Seven & i - could boost the odds of a deal that would create a global convenience-store behemoth.

"It all depends on the price, and I guess the weak yen has made it more attractive and anything north of 7 trillion yen (HK$373 billion), the management would have a tough time rejecting," said Amir Anvarzadeh, a strategist at Asymmetric Advisors. "But knowing the Seven & i management, you can bet on them resisting this if the price is lower."

Shares of Seven & i posted their largest gain on record following a report on the bid by the Nikkei newspaper. Before yesterday's jump, the stock had dropped 21 percent since the end of February, making the company more attractive to a possible suitor.

Seven & i has come under pressure from activist fund ValueAct Capital Management over perceptions that its assets could be worth more and to narrow its focus to 7-Eleven stores, saying that as a standalone listed company the convenience-store business could be worth as much as 8,500 yen per share. Seven & i shares closed at 2,161 yen yesterday.