Has the Alimentation Couche-Tard 7-Eleven takeover attempt failed?
ATD.TO Update and valuation
In August, my portfolio holding Alimentation Couche-Tard announced its intention to acquire 7-Eleven’s parent company, Seven & I Holdings. I gave my initial opinion in this post. This merger would make Couche-Tard the undisputed leader in the convenience store industry. With all that’s happened since then, it’s time for an update and to value $ATD.TO.
What has happened?
Following the initial offer, Couche Tard raised the bid several times up to $47 billion, a 22% premium at the time. In my last post, I cited that Japan is pushing for a better capital market and not shrug off foreign offers for companies. It turns out that the Ito family, who founded 7-Eleven and still owns over 8% of the company, does not want to sell its business.
Couche-Tard said it wants to find a deal but will not go hostile. Several shareholders of 7-Eleven and Couche-Tard urged management to consider the deal as it was in the shareholders' interest.
The latest development is that the Ito family, together with a syndicate of banks and other investors, wants to do a management buyout of Seven & I Holdings to repel Couche-Tards acquisition intent. The proposed buyout values the business at 9 trillion yen ($60 billion), a significant premium to the Couche-Tard offer, or around 9 times EBITDA. Couche-Tard, on the other hand, trades at 12 times trailing EBITDA and 11 times forward EBITDA.
How would it be financed?
Similar to questions around Couche-Tard’s ability to finance such a large takeover, the Ito family would need to use massive leverage. According to Forbes, the siblings have a net worth of $4 billion from their stake in the business and no other significant wealth. This makes financing the remaining $56 billion even more challenging than for Couche-Tard, who has experience in large M&A and has raised large funding in the past (although at a much smaller scale). The deal would include 6 trillion yen in loans from Sumitomo Mitsui Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. and any other institutions. Ito will also cooperate with Itochu Corp on the deal. This obviously is an enormous leverage and the plan emerged to split the business and raise money with an IPO.
Previously, it was communicated that the domestic supermarket and retail business would be split. We now also have plans to IPO the NA convenience store business. This could raise a trillion yen to pay down parts of the debt. Seven & I intends to retain minority stakes in the spun-off companies.
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