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Couche-Tard's failed bid to acquire Seven & i sparks Japan M&A debate
Alimentation Couche-Tard Inc.'s decision to walk away in frustration from an attempted acquisition of Seven & i Holdings Co. set off a debate in Tokyo as to what lessons foreign companies with ambitions for M&A should draw.
The bid was audacious from the start. 7-Eleven convenience stores have one of Japan's most recognizable 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 archrivals to try and block it.
Still, 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 Nicholas Smith, a strategist at CLSA.
'Seven & i is just an obstructive character in an ongoing success story,' said 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.'
Stephen Dacus, the new chief executive officer of Seven & i, now has to prove that the Japanese retailer can grow and boost its efficiency on its own. The shares fell 9 per cent on Thursday after Couche-Tard walked away from its bid. The company plans to sell its superstore business for $5.4 billion, and is proposing a ¥2 trillion 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 Jesper Koll, expert director at Monex Group Inc. 'The issue is not that this is old-style Japan protectionism, quite the opposite,' said Koll. '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 Inc. walked away from a buyout of Toshiba Corp. 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 Co., better known as Foxconn, pulled off a deal in 2016 to take a controlling stake in Japanese electronics maker Sharp Corp. for ¥389 billion. 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 outmaneuver a Japanese government-backed bidder.
'The implications of today's news will only be understood a year from now, and will hinge on whether management succeeds in accelerating group reforms and turning around the situation in both Japan and the US,' said Michael Jacobs, an investment analyst at T. Rowe Price Japan on Thursday.
Unsolicited offers have quite often met strong resistance regardless of where the prospective buyers come from.
Japanese motor maker Nidec Corp. made an unsolicited bid for Makino Milling Machine Co., shocking many Japanese companies that had never imagined they could become a takeover target by a Japanese firm. Nidec, like Couche-Tard, withdrew the bid earlier this year due to strong opposition. In another closely watched case, Taiwan's Yageo Corp made a takeover bid for Shibaura Electronics, prompting a counter bid from Japanese rival Mineba Mitsumi Inc.
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 simply money and Couche-Tard's ¥6.77 trillion ($45.8 billion) bid simply wasn't enough.
'Seven & i did what any US company would do,' said Jamie Halse, CEO & CIO at Senjin Capital Pty Ltd. 'It was up to Couche- Tard to put in a knockout offer.'
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