It would have been easy to think that, with Canadian convenience store chain Alimentation Couche-Tard (TSE:ATD) about to run into a roadblock in terms of buying 7-Eleven branches throughout North America from parent company Seven & i, the recent news about divesting the North American branches would have stopped Couche-Tard cold. But that may not be the case, as talks between the two seem to be ramping up. Shareholders were not pleased, and sent shares slipping nearly 2% in Monday morning’s trading.
The idea, however, that Seven & i’s plan to divest the North American business into its own publicly-traded stock may have, indeed, eased the way for Couche-Tard to step in and buy. New reports suggest that the two companies are already exploring options together, as there may be some antitrust concerns coming out of the United States.
The biggest problem, for the pair and for United States regulators, is the over 2,000 “…overlapping stores…” that would need to be divested in the wake of such a deal. Those 2,000 stores would need a buyer, and that buyer would have to be sufficiently “…credible and independent…” to make the deal pass regulatory muster.
Paving the Way
Last time we discussed the Couche-Tard / Seven & i deal, we brought up the notion that Seven & i’s plan to spin off the North American operation made some sense. The two were fundamentally different operations anyway; the Slurpees and roller dogs of North American stores were not even a patch on what Japanese stores offered. And with the Japanese government raising national security concerns over the sale, Japan simply getting out of the American business made sense.
There is a possibility that the new 7-Eleven America operation—whatever it ends up called—will simply carry on, taking the cash it raises from the IPO that is set to follow to augment it own operations. But perhaps more likely is that this is simply setting the stage for Couche-Tard to buy up the majority of shares, and thus, buy what it actually wants: the North American 7-Elevens. Though, as noted previously, there will be regulatory concerns to address.
Is Alimentation Couche-Tard Stock a Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on TSE:ATD stock based on seven Buys assigned in the past three months, as indicated by the graphic below. After a 12.68% loss in its share price over the past year, the average TSE:ATD price target of C$88 per share implies 23.3% upside potential.
See more TSE:ATD analyst ratings
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