Circle K operator Alimentation Couche-Tard’s proposal to acquire Japanese rival and 7-Eleven owner Seven & i Holdings Co., is likely to attract antitrust scrutiny, particularly in the U.S., according to a retail analyst.
“I would imagine that there’s going to be some regulatory concern and some required divestment in order to make this [deal] work,” Bryan Gildenberg, managing director at Retail Cities, told CNBC’s “Street Signs Asia.”
Noting that 7-Eleven and Circle K are the two largest convenience store chains in the United States, Gildenberg said he expects the American Federal Trade Commission to have a “very strong point of view” on the potential merger, while Japanese regulators would also have concerns.
Seven & i Holdings said that it had received a preliminary takeover offer from Canada’s Couche-Tard on Monday. Couche-Tard, which confirmed it made a “friendly, non-binding proposal,” did not disclose how much it was willing to pay for the company.
If a deal were to go through, the combined company would represent 12.3% of the U.S. convenience store market, according to a Monday note from Canaccord Genuity Capital Markets. The next largest player in the space is Casey’s, with a 1.7% share, the note added.
Antitrust risks in the U.S. would be particularly stark in Florida and Texas, where the stores have a “fairly significant overlap,” Gildenberg said.
While Couche-Tard has about 16,700 stores globally, far fewer than Seven & i Holdings’ about 85,800, it commands a higher valuation of $57 billion as per market close on Monday compared with the Tokyo-listed company’s nearly $38 billion.
Seven & i shares jumped 23% in trading on Monday, while Couche-Tard lost over 2% on news of the proposed bid. Seven & i shares fell nearly 11% on Tuesday.
If the deal were completed, it would be the biggest-ever foreign takeover of a Japanese company and will possibly be followed by more acquisitions in the country, Gildenberg said.
“If you’re looking at international expansion, Japan’s the third largest market in the world and is one of the least penetrated, in some ways, by global companies,” he said, noting almost all of Japan’s top retailers are domestic names.
“The opportunity simply to just get access to that market at its size is significant.”
Couche-Tard also announced a deal to purchase U.S. company GetGo, which operates about 270 convenience retail and fueling locations across stateside.
According to Gildenberg, this shows that Couche-Tard is looking to strengthen its food services offerings — a strong suit of both GetGo and 7-Eleven.
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