Seven & i Shares Plunge After Management Buyout Collapses

Shares of Seven & i Holdings Co., a prominent Japanese convenience store operator, saw a significant drop after the company's management buyout proposal worth ¥9 trillion ($60 billion) fell through. This has intensified the pressure on the company, prompting it to consider a rival acquisition bid from Alimentation Couche-Tard Inc., a Canadian company.

The proposed buyout was initiated by a group that included the founding Ito family and Itochu Corp. However, they faced challenges in securing the financing needed to make the definitive proposal, as stated by Seven & i.

On Thursday, the company's shares plummeted by as much as 12.5% during early trading in Tokyo, which reduced its market capitalization to approximately $38 billion. In contrast, Itochu’s shares rose by 6.8% following the news.

Context of the Buyout

The management buyout was first announced in November, aimed at countering Couche-Tard’s acquisition offer, which valued Seven & i closer to $47 billion. With the collapse of the management buyout, the CEO of Seven & i, Ryuichi Isaka, may have no choice but to negotiate with Couche-Tard further.

Couche-Tard, known for owning the Circle-K brand, has been pursuing Seven & i for several months but has yet to gain access to the Japanese company's financial details.

Future Outlook and Negotiations

In its statement, Seven & i affirmed its commitment to exploring opportunities that can enhance shareholder value and is currently assessing Couche-Tard’s proposal. The company is working to see if a feasible agreement can be developed that would also navigate potential US antitrust concerns.

This interest from Couche-Tard has been evident since more than six months ago, with the company even revising its initial offer up in September.

The family heirs of Seven & i's founder were expected to contribute roughly ¥500 billion toward the management buyout, while Itochu aimed to invest over ¥1 trillion. Additional funding was to be sought from various strategic investors and leading banks in Japan. Apollo Global Management, KKR, and CP All, which operates the 7-Eleven franchise in Thailand, were reportedly interested in participating in the equity financing.

According to Lorraine Tan, a Morningstar Asia analyst, the failure to raise the necessary funds for the buyout was not surprising, as the returns at the suggested valuation would have likely been uncertain. There were also reported disagreements within the buyout consortium regarding control of Seven & i once it became private, contributing to the negotiations coming to a halt.

Seven, Buyout, Acquisition