It was not long ago that convenience store giant Alimentation Couche-Tard (TSE:ATD) started up a play to buy 7-Eleven, going through its parent company Seven & I (JP:3382). Reports have come back, however, noting that Couche-Tard’s first try simply will not fly. The news proved somewhat positive for investors, though, as shares were up fractionally in Thursday morning’s trading.
The latest word is that 7-Eleven’s parent company considers the first offer “inadequate” and will be telling Couche-Tard as much soon, though in a sense, with this information coming out, it may already have. Couche-Tard will be asked to reconsider, especially in light of various competition law concerns in the United States, where a bulk of 7-Eleven’s business is done.
Further, Seven & I made it clear that it is not rejecting the offer per se, but would rather want Couche-Tard to modify it somewhat according to conditions on the ground. The formal letter regarding this matter may go out as early as Friday, noted sources. Couche-Tard offered close to six trillion yen for the company, which works out to about C$56.484 billion.
Maybe Not So Inadequate
Reports noted that Couche-Tard’s offer, as it sits, was enough to push shares of Seven & I up nearly 25%. This, in turn, is being regarded as a vote of no-confidence in Seven & I’s current CEO, Ryuichi Isaka. New owners, investors seem to believe, will have a better chance of unlocking the full value contained within the company.
Currently, 7-Eleven stores in Japan are considered “world-class” and are generating significant profit. But bringing the rest of the stores worldwide up to that standard is proving to be a difficult, and likely expensive, challenge. With 7-Eleven accounting for around 75% of revenue, improving those stores will be vital to the company’s future. But can it even deliver? A sale to Couche-Tard may remove the issue altogether.
Is Alimentation Couche-Tard a Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on TSE:ATD stock based on 10 Buys and one Hold assigned in the past three months, as indicated by the graphic below. After a 4.92% rally in its share price over the past year, the average TSE:ATD price target of C$87.73 per share implies 17.98% upside potential.
