Couche-Tard’s failed Seven & i acquisition fuels Japan M&A debate
Japan’s most famous convenience store chain, 7-Eleven, would have been the largest foreign acquisition in its history. Couche-Tard Inc. has decided to abandon its attempted acquisition of Seven & i Holdings Co., prompting a discussion in Tokyo about the lessons foreign companies pursuing M&A should consider.
The bid was bold from the outset. 7-Eleven convenience stores represent one of Japan’s most recognizable brands, and a takeover would mark the largest by a foreign entity in the country’s history. The founding Ito family members opposed the deal so strongly that they sought help from one of their archrivals to block it. Despite advocating for a more investor-friendly approach from companies, the government did not face significant political opposition, even as Seven & i sought enhanced protection under a law that could have jeopardized a deal. Couche-Tard attributed the deal’s failure to the intransigence of Seven & i’s management. This outcome, as noted by Nicholas Smith, a strategist at CLSA, contradicts the broader trend in the investing landscape.
“Seven & i is just an obstructive character in an ongoing success story,” said Smith. “Activist trades and shareholder proposals are thriving.” Private equity views Japan as a highly appealing market globally and is actively increasing its hiring efforts. “Management can’t afford to relax one bit.” Stephen Dacus, the new chief executive officer of Seven & i, must now demonstrate that the Japanese retailer can independently grow and enhance its efficiency. The shares dropped 9 percent on Thursday following Couche-Tard’s decision to withdraw its bid. The company intends to divest its superstore business for $5.4 billion, while proposing a ¥2 trillion share buyback and a listing of its US operations.
Jesper Koll, expert director at Monex Group Inc., notes that Seven & i’s rejection of the deal indicates a growing aggressiveness among Japanese firms. “The issue is not that this is old-style Japan protectionism, quite the opposite,” said Koll. “This is actually an injection of energy and competitive spirits into a Japan-led management team that is actually very international.”
The history of outsider attempts to take over prominent Japanese companies is varied.
KKR, CVC Capital Partners, and Blackstone Inc. abandoned their buyout of Toshiba Corp. due to strong opposition from management. Concerns regarding the valuation, complexity, and political nature of the deal posed significant challenges, ultimately leading to a consortium led by a domestic fund emerging victorious. In 2016, Hon Hai Precision Industry Co., commonly known as Foxconn, secured a controlling stake in Japanese electronics manufacturer Sharp Corp. for ¥389 billion. The Taiwanese electronics contract manufacturer had sought the Japanese company for years. Terry Gou, founder of Foxconn, lobbied Japanese lawmakers, engaged banks, and enhanced its offer to surpass a competitor backed by the Japanese government.
“The implications of today’s news will only be understood a year from now, and will hinge on whether management succeeds in accelerating group reforms and turning around the situation in both Japan and the US,” said Michael Jacobs, an investment analyst at T. Rowe Price Japan on Thursday. Unsolicited offers frequently encounter significant opposition, irrespective of the origin of the prospective buyers.
Nidec Corp., a Japanese motor maker, has made an unsolicited bid for Makino Milling Machine Co., surprising many Japanese companies that never considered the possibility of being a takeover target by a domestic firm. Nidec, similar to Couche-Tard, retracted its bid earlier this year amid significant opposition. Taiwan’s Yageo Corp has made a takeover bid for Shibaura Electronics, leading to a counter bid from Japanese rival Mineba Mitsumi Inc.
Some contended that the collapse of the Couche-Tard deal was unrelated to the nationalities or cultures of the companies involved. The problem was straightforward: money. Couche-Tard’s ¥6.77 trillion ($45.8 billion) offer was simply insufficient. “Seven & i did what any US company would do,” stated Jamie Halse, CEO & CIO at Senjin Capital Pty Ltd. “It was up to Couche-Tard to put in a knockout offer.”
