Couche-Tard scraps $47 billion bid for Japan's Seven & i

The surprise move ends what could have been the largest foreign takeover of a Japanese company as Circle K operator Couche-Tard sought to create a global convenience store giant by acquiring the company behind 7-Eleven.

"There has been no sincere or constructive engagement from 7&i that would facilitate the advancement of any proposal, contrary to comments made publicly by 7&i representatives," Couche-Tard said in a letter to its board of directors.

"Rather, you have engaged in a calculated campaign of obfuscation and delay, to the great detriment of 7&i and its shareholders," the letter said.

Seven & i said in a statement that "while we are disappointed by ACT's decision, and disagree with their numerous mischaracterizations, we are not surprised."

Seven & i is widely seen as a test case for corporate Japan's openness to foreign takeovers. The withdrawal came after Nippon Steel was able to acquire US Steel in a contentious $14.9 billion transaction.

Seven & i shares fell 9% in morning trading in Tokyo.

"We are very disappointed in what appears to be a lack of willingness to engage from Seven & i," said Manoj Jain, co-founder and co-CIO of Hong Kong-based Maso Capital.

"We believe there is significant value to be realised in a combination and have expressed this view to the management and the board."

Couche-Tard raised its offer to about $47 billion last year and in March offered to increase it further if the Japanese firm cooperated and revealed more financial information.

It was also working with Seven & I on a store sale plan, in a bid to ease some regulatory hurdles.

Couche-Tard's approach appeared to be gathering steam after a white-knight bid from Seven & i's founding Ito family ended after failing to get financing.

Couche-Tard said it had sought to speak to the family but found them unwilling to engage.

The two companies inked a non-disclosure agreement (NDA) but "the quantity and substance of the permitted due diligence, including at two tightly constrained management meetings, have been negligible," Couche-Tard said in the letter.

ALTERNATIVE PROPOSALS

Couche-Tard said it believed a full combination of the two companies would maximise value for shareholders but had also explored alternatives.

The retailer said it had proposed acquiring all of 7&i's business outside of Japan and 40% of the business in Japan, where convenience stores are seen as key infrastructure due to their support role during natural disasters.

"We are not able to effectively pursue this combination without deeper and genuine further engagement from 7&i leadership and the special committee," the letter said.

Seven & i proposed selling its international business to Couche-Tard in return for a stake in the Canadian retailer, the letter said.

Such a deal "would not deliver the significant premium that was offered to your shareholders in our transaction proposals," the letter said.

Seven & i, whose first foreign CEO Stephen Dacus took the role in May, has been under intense pressure to improve its lacklustre earnings and demonstrate it can grow independently.

"We remain fully committed to our standalone value creation plan, which we have been pursing in parallel," said Seven & i.

The retailer has announced a share buyback, is selling off non-core assets and plans to list its North American convenience store business.

"It shows you can drag out the process to avoid being bought out," said an investor in Seven & i, who spoke on condition of anonymity.

Given how long Couche-Tard's process has taken I can't see anyone else coming in with a bid," the investor added.

Reuters