Jessica Loder
4 min read
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As the world waits to learn whether Seven & i, parent company of 7-Eleven, will accept a takeover bid from Alimentation Couche-Tard, experts are considering what such a deal would look like and how it could be most successful.
In a recent report from Bloomberg Intelligence, Equity Research Analyst Diana Rosero-Pena noted that “Couche-Tard risks wiping out $24.5 billion in combined market cap in a potential buyout of Seven & i if it doesn't get synergies at the very top of the range achieved in previous deals.”
In previous acquisitions, the parent company of Circle K generally found synergies of 30%-60% of the target’s EBITDA, according to Bloomberg Intelligence’s report. However, “a similar number with Seven & i could prove difficult.”
C-Store Dive spoke with Rosero-Pena about the hurdles Couche-Tard is facing to seal the deal, as well as what might lie ahead if it’s approved.
One challenge highlighted in Bloomberg Intelligence's report is the lack of fuel overlap between the two companies. Many 7-Elevens simply don’t have gas pumps, while. Couche-Tard boasts impressive U.S. fuel margins in the low-to-mid-40’s cents per gallon, she added.
“Seven & i stores tend to be urban, compared to suburban [stores] from Circle K,” said Rosero-Pena.
Acquiring a company with a significant fueling station footprint would benefit Couche-Tard’s supply chain, enabling the retailer to push its synergies toward the upper end of the range, while a purchase of Seven & i may not harmonize as strongly with Couche-Tard’s existing operations.
Another potential impediment is the prevalence of franchisees in Seven & i’s footprint, said Rosero-Pena. While less than half of Couche-Tard’s footprint is franchised, that number is more than 90% at 7-Eleven.
A high percentage of franchised stores can make it difficult for the acquirer to quickly make changes to the new stores, depending on the contract, she noted. That could also lower savings.
“There's a lot of investor sentiment that feels that the synergies … might be on the lower end, probably even lower than 30%, because of these issues,” said Rosero-Pena.
If the deal is made in stock or a combination of stock, cash and debt, the impacts on shareholders probably won’t be as bad. However, if the deal is completely financed through debt, that could burden the combined company.
A large amount of debt means Couche-Tard would probably prioritize repayment over some other costs and investments for a while, especially if it wants to maintain its credit rating.
