Why Couche-Tard’s Bold Bid for 7-Eleven Could Be a Game-Changer: Insights from a Portfolio Manager
Participants at a product meeting for 7-Eleven Japan in Tokyo on Jan. 23, 2024, sampled onigiri, with the staff and suppliers evaluating flavors, textures, and fillings of the popular Japanese rice balls. The event highlighted the significance of onigiri to 7-Eleven, which sells over 2 billion annually.
In related news, Alimentation Couche-Tard (ACT) has proposed a buyout of 7-Eleven’s owner, Seven & i Holdings Co. Although the amount is undisclosed, if successful, it could mark the largest-ever foreign acquisition of a Japanese firm. ACT’s interest is attributed to Seven & i’s stock being more affordable than its global peers, according to Richard Kaye, portfolio manager at Comgest.
Not everyone agrees on the potential benefits of the takeover. Kaye noted that there is little room for improvement in 7-Eleven’s core business, which excels in logistics and product innovation. However, he acknowledged the need for faster reform in Seven & i’s other segments, such as general merchandise stores.
Artisan Partners Asset Management has urged Seven & i to seriously consider the buyout, potentially divesting its underperforming supermarket business to grow 7-Eleven’s global presence. However, Kaye believes ACT sees the stock’s low price rather than genuine value.
Regulatory hurdles are expected, particularly concerning U.S. anti-trust scrutiny. Seven & i’s potential designation as a “core” company under Japan’s Foreign Exchange and Foreign Trade Act would require government vetting for any acquisition above 10% stake. This move underscores Seven & i’s concern that an ACT buyout might disrupt its finely tuned konbini (convenience store) business model, which it aims to export to the U.S.
Despite potential challenges, Kaye sees Seven & i as a “buying opportunity” alongside other high-performing but undervalued Japanese companies in the global market. As of the latest market close, ACT, with 16,700 stores worldwide, commands a higher valuation of $54 billion compared to Seven & i, which has approximately 85,800 stores and a valuation of $38.3 billion.
Original Story https://www.cnbc.com/2024/09/03/why-does-couche-tard-want-to-buy-7-eleven-its-a-cheap-stock-say-portfolio-manager-.html
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