News analysis
Couche-Tard’s failed bid for 7-Eleven owner sparks debate over foreign takeovers in Japan
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7-Eleven convenience stores have one of Japan’s most recognisable brands and a takeover would have been the largest by a foreign entity in the country’s history.
PHOTO: REUTERS
TOKYO – Alimentation Couche-Tard’s decision this week to walk away in frustration from its US$46 billion (S$59 billion) bid for 7-Eleven owner Seven & i Holdings set off a debate in Tokyo as to what lessons foreign companies with ambitions for mergers and acquisitions should draw.
The bid was audacious from the start. 7-Eleven convenience stores have one of Japan’s most recognisable brands, and a takeover would have been the largest by a foreign entity in the country’s history. Moreover, the founding Ito family members were so opposed to the deal that they turned to one of their arch-rivals to try to block it.
The government, which has been pushing for companies to take a more investor-friendly approach, did not raise strong political opposition, even though Seven & i had sought greater protection under a law that could have scuttled a deal.
While Couche-Tard placed the blame squarely on intransigence from Seven & i’s management, the failure of the deal runs counter to the broader trend in the investing landscape, according to Mr Nicholas Smith, a strategist at CLSA.
“Seven & i is just an obstructive character in an ongoing success story,” said Mr Smith. “Activist trades and shareholder proposals are on fire. Private equity sees Japan as one of the most attractive markets in the world and is hiring aggressively. Management can’t afford to relax one bit.”
Mr Stephen Dacus, the new chief executive of Seven & i, has to prove that the Japanese retailer can grow and boost its efficiency on its own. The shares fell 9 per cent on July 16 after Couche-Tard walked away from its bid. The company plans to sell its superstore business for US$5.4 billion and is proposing a two trillion yen (S$17.3 billion) share buyback and a listing of its US business.
Seven & i’s rejection of the deal is a sign of more aggressiveness in Japanese firms, according to Mr Jesper Koll, expert director at Monex Group. “The issue is not that this is old-style Japan protectionism, quite the opposite,” he said. “This is actually an injection of energy and competitive spirits into a Japan-led management team that is actually very international.”
The history of attempted takeovers of marquee Japanese companies by outsiders is mixed.
KKR, CVC Capital Partners and Blackstone walked away from a buyout of Toshiba after meeting stiff resistance from management. Concerns about the valuation, complexity and political nature of the deal were all headwinds that eventually resulted in a consortium led by a domestic fund prevailing.
Hon Hai Precision Industry, better known as Foxconn, pulled off a deal in 2016 to take a controlling stake in Japanese electronics maker Sharp for 389 billion yen. The Taiwanese electronics contract manufacturer had pursued the Japanese company for years. Foxconn founder Terry Gou had lobbied Japanese lawmakers, co-opted banks and sweetened its offer to outmanoeuvre a Japanese government-backed bidder.
Others argued that the failure of the Couche-Tard deal had nothing to do with the nationalities or cultures of the companies involved. The issue was money and Couche-Tard’s US$46 billion bid simply was not enough. BLOOMBERG
