[Business & Issues] Seven-Eleven Receives Acquisition Proposal from Canadian Retail Giant... Why Its Stock Price Is Fluctuating

Canada ACT Submits Acquisition Proposal
Hostile M&A Possible if Proposal Rejected
US and Japan Antitrust Regulations Are Key

[Image source=AFP Yonhap News]

Canada's major retail company Alimentation Couche-Tard (ACT) has proposed acquiring Japan's leading convenience store brand Seven-Eleven, causing the stock price of Seven & I Holdings, which operates Seven-Eleven, to fluctuate. If Seven-Eleven, the number one convenience store company in the U.S. market, is acquired by ACT, the second largest company, an even more dominant convenience store market leader will emerge. However, concerns have also been raised that if the acquisition negotiations fail, ACT might turn hostile and pursue a hostile merger and acquisition (M&A). With the possibility of antitrust regulations from both U.S. and Japanese authorities, Seven & I Holdings' stock price is expected to experience significant volatility for some time.

Canada's ACT Proposes Acquisition Worth 46 Trillion Won... Aiming for Monopoly in U.S. Convenience Store Market

ACT recently sent a proposal to Seven & I Holdings to acquire Seven-Eleven. In a press release following the acquisition proposal, ACT described the deal as "beneficial to customers and employees of both companies," but added, "There is no guarantee at this stage that a contract or deal will be finalized, and the transaction amount cannot be disclosed."

Seven & I Holdings has formed a special committee composed of outside directors to review the acquisition proposal. According to the Nihon Keizai Shimbun (Nikkei), citing sources from Seven & I Holdings, "Although details including the method of share acquisition have not been disclosed, if the deal goes through, considering Seven & I Holdings' market capitalization and premium, at least 5 trillion yen (approximately 46 trillion won) would be required."

The main reason ACT wants to merge with Seven-Eleven is interpreted as a move to completely dominate the U.S. convenience store market. According to Le Monde, ACT owns convenience store brands such as Couche-Tard and Circle K, with over 18,000 stores in more than 30 countries across North America and Europe. However, in the U.S. market, Seven-Eleven holds a 14.5% market share, ranking first, while ACT holds about 4.6%, ranking second.

Seven-Eleven's Stock Price Volatile... "Hostile M&A Possible if Proposal Rejected"

Market reactions to the acquisition proposal are divided between optimism and pessimism. On the 19th, when the acquisition news broke, Seven & I Holdings' stock price surged 22.71% from the previous close to 2,161 yen per share, but the very next day, on the 20th, it dropped 10.55% to 1,933 yen, showing high volatility.

The reason for the stock price fluctuations is the possibility that if the acquisition proposal fails, ACT might pursue a hostile M&A and turn against Seven & I Holdings. According to the Yomiuri Shimbun, citing market experts, "Seven & I Holdings' stock price had been sluggish even after a 3-for-1 stock split at the end of February, but rebounded around the time of ACT's acquisition proposal. If Seven & I Holdings rejects the proposal, ACT could initiate a hostile M&A, and with many activist funds among its shareholders, Seven & I Holdings would face significant challenges defending its management rights."

Since last year, Seven & I Holdings has been under strong pressure from activist fund shareholders to separate and sell off the Seven-Eleven convenience store business. In April last year, activist shareholder funds such as U.S. investment firms Artisan Partners and ValueAct Capital strongly demanded the spin-off, sale, and business division of Seven-Eleven, as well as changes to the board of directors. Seven & I Holdings accepted some of these shareholder proposals and replaced 9 of its 15 board members with independent outside directors.

U.S. and Japanese Authorities Concerned About Monopoly... Attention on Whether They Will Intervene Due to Food Security Issues

[Image source=AP Yonhap News]

Even if the acquisition proposal is successful and the merger between ACT and Seven-Eleven is completed, it must overcome antitrust regulatory hurdles from U.S. and Japanese authorities. The U.S. government is expected to impose strong regulations as it is wary of the emergence of a monopoly in the convenience store market, which is directly linked to the cost of living for ordinary citizens.

Neil Sanders, director at the UK consulting firm GlobalData, said, "The convenience store sector is part of the grocery market and deals with daily necessities, so it is highly likely to be subject to antitrust scrutiny by U.S. authorities. Three years ago, in 2021, when ACT attempted to acquire Carrefour SA, France's largest convenience store brand, the French government forced a halt to the deal citing food security concerns, and ACT withdrew from the transaction."

The Japanese government is likely to oppose the acquisition more strongly than the U.S. government. According to the Sankei Shimbun, "Seven-Eleven is more than just a convenience store in Japanese society; it is part of daily life, providing meals, bill payment, and banking services. In times of crisis such as typhoons and earthquakes, it is recognized as a place to secure emergency food supplies. Given public sentiment, it will not be easy for the government to allow such a company to be taken over by a foreign firm."