Seven & I Holdings (3382): Will this convenience store icon finally be gobbled up by Couche-Tard?

Will the stock see a massive surge from a potential deal, or could negotiations collapse and send it tumbling?

Please note: This article is for informational purposes only and is not intended as investment advice. The mention of specific stocks is not a recommendation to buy or sell any securities.

I took a hard look at Seven & I Holdings back in April, and I’ll be honest, I wasn’t exactly blown away. The company’s ROE was as exciting as watching paint dry, and the profit growth isn’t doing much better. Sure, they’ve become the world’s largest convenience store brand, but despite that incredible journey, Seven & I felt a little... stuck.

However, things are starting to get interesting. Alimentation Couche-Tard (weirdly abbreviated to ATD), a leaner, meaner, and much more profitable convenience store operator, is now making serious moves to buy them up. And this acquisition could really shake things up.

However, there’s a lot of emotional baggage here. For many, 7-Eleven is more than just a store; it’s a Japanese institution. Tourists and locals alike are in awe of their packed-to-the-brim, spotless stores, where you can find anything from gourmet sushi to the latest manga, all delivered with impeccable quality. People are genuinely worried that if a foreign company takes the reins, that signature “Japanese touch” might fade away. But for shareholders? This could be the payday they’ve been waiting for.

In this analysis, we’ll break down the potential outcomes of this acquisition, what it means for Seven & I’s future, and whether Couche-Tard’s bid is the lifeline this giant needs.

Table of Content
1. Timeline of the Acquisition Process
2. Investment Thesis
3. Valuation
4. KonichiValue Score

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1. Timeline of the Acquisition Process:

• August 19, 2024: Seven & I received a non-legally binding, friendly acquisition proposal from Alimentation Couche-Tard (ATD). This is their third attempt to acquire the company, following previous offers in 2005 and 2021.

• August 23, 2024: Reports surfaced detailing potential regulatory hurdles, especially regarding foreign ownership in certain key areas like security and banking​.

• September 9, 2024: Seven & I officially rejected the proposal, citing undervaluation of their intrinsic shareholder value and concerns about US competition laws​.

• September 12, 2024: ATD expressed disappointment in the refusal but reiterated its willingness to engage in further discussions and meet any regulatory requirements​.

From here, it appears that the process may drag on, with either party escalating their moves. There are potential scenarios where ATD could increase their bid, go hostile, or even walk away depending on market dynamics.

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2. Investment Thesis:

The acquisition attempt by Couche-Tard sheds new light on Seven & I’s undervaluation. For years, the company has been trading below its potential due to poor profit growth and an inefficient operational structure. However, with restructuring efforts in its superstore business and strong domestic and international convenience store operations, there’s untapped value waiting to be unlocked.