The convenience store, or konbini, is an institution of modern Japanese life. Open at all hours, it offers customers tasty food and household essentials, as well as the ability to pay bills and send parcels. The industry leader, 7-Eleven, perfected new products, such as takeaway onigiri, or rice balls, and eventually took over the American chain from which it sprang. But if Alimentation Couche-Tard (ACT), a Canadian retailer that operates the Circle K chain of shops, has its way, 7-Eleven will no longer be Japanese.
On August 19th Seven & i, 7-Eleven’s parent company, announced it had received a takeover offer from the Canadian firm. If accepted, the deal would be the largest-ever foreign acquisition of a Japanese company. It would create a global convenience-store goliath, bringing together ACT’s network of 17,000 outlets with Seven & i’s 86,000. The proposal also says much about how corporate governance in Japan is evolving.
ACT’s offer comes after years of pressure on Seven & i. Throughout the past decade two American activist investors, Third Point and ValueAct Capital, have taken large stakes in the company and pushed it to focus on its core konbini business. Last year it sold off its department-store business, Sogo & Seibu, and downsized Ito-Yokado, another retail brand. It has also spent billions expanding its convenience-store empire abroad, recognising the limits to growth in ageing Japan. In 2020 it beat out ACT to acquire Speedway, an American petrol-station network.
Markets remained dissatisfied. Before the takeover announcement Seven & i’s shares were down 6% since the start of the year, compared with a 14% rise for the broader Nikkei index. A weaker yen has pushed its valuation down further still in dollar terms. Though ACT’s sales are less than Seven & i’s and its footprint is smaller, the Canadian firm is far more profitable, with a return on capital of 10%, compared with just 4% for Seven & i. Its market value, at $56bn, far exceeds the Japanese company’s (see chart).
That divergence presented an opportunity for ACT, which has long sought growth through dealmaking. More than 70% of its network of stores comes from acquisitions, according to Goldman Sachs, a bank. ACT has set an ambitious target to nearly double its gross operating profit to $10bn by 2028. Swallowing 7-Eleven would go a long way towards that. Investors in the target firm took the news well: even though the terms of the proposal were not disclosed, shares of Seven & i jumped by 23% on the day of the announcement.
The deal faces plenty of obstacles. Seven & i’s directors may yet reject the offer. Even if they accept, regulators may step in. In America 7-Eleven and ACT are already the top two convenience-store operators, with a combined network of around 20,000 outlets. The next-largest, Casey’s, has fewer than 3,000. ACT’s attempt in 2021 to acquire Carrefour, a French supermarket giant, was scuppered by the government there, which cited food-security concerns. In Japan konbini serve stricken communities during natural disasters; officials will want to ensure that role continues.
Nonetheless, the bid marks a watershed even if it falls through. Ever since Abe Shinzo, a former prime minister, began reforms in 2013, Japan has made steady, if patchy, progress towards becoming more shareholder-friendly. Independent directors have filled board seats and executives have focused more on profitability.
Japan’s government has also sought to change traditionally hostile attitudes towards mergers and acquisitions. New guidelines on takeovers published last year urge firms to evaluate bids based on whether they “secure or enhance corporate value and the shareholders’ common interests”. Seven & i’s initial reaction suggests that the measures are working: the board has formed a special committee made up of outside directors to “conduct a prompt, careful and comprehensive review”.
Alain Bouchard, the founder and chairman of ACT, has long coveted its Japanese rival. In 2005 he flew to Tokyo to try to convince Ito Masatoshi, who brought 7-Eleven to Japan, to part with the American portion of the business, only to be rebuffed. “The Japanese aren’t sellers,” he later reflected. The fact that his latest offer is receiving serious consideration is a sign of how much has changed. ■
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