Convenience store aficionados of the world, relax. Your perfect egg sandwich is safe, for now.
The primary concern for millions of Japanese about the ￥6.77 trillion (US$45.54 billion) bid for Seven & i Holdings Co was that Canada’s Alimentation Couche-Tard Inc would, in search of improving shareholder value, destroy the customer experience that has made the Japanese convenience store, or conbini, a global sensation.
That threat seems to have faded after Couche-Tard on Thursday abandoned its bid, citing a lack of “sincere or constructive engagement.”
Illustration: Tania Chou
Couche-Tard’s ill-tempered and unusually in-depth letter should be read in full. It drips with the same sense of entitlement that colored its bid from the start — as if it expected buying the Japanese rival to be as simple as grabbing something from a store shelf.
It should have been more prepared. The 7-Eleven chain has become one of Japan’s most beloved brands, even if it did originate in the US, and is a crucial part of disaster infrastructure. Indeed, the statement betrayed how unprepared Couche-Tard was to buy such a large Japanese firm.
Consider this passage about meetings between the two parties: “The content of the meeting was, as your adviser characterized it, a ‘readout.’ We appreciated the constructive approach that some members of the 7-Eleven team took, but ultimately these discussions revealed little new information. ... Our experience in Tokyo was similar. Our meeting, which lasted for approximately half the allotted time, was tightly scripted.”
For anyone who has familiarity with Japan, tightly controlled meetings that reveal little new information or function as a “readout” should come as no surprise. For better or worse, this is how things run here.
That Couche-Tard came unprepared for what is essentially “day one of working in Japan” does not inspire hope that it would have been a good steward, with Seven & i still generating more than half its profits at home.
There would be a lot of takes talking about how the failure of this bid dents corporate governance reform in Japan that focus on the “disappointment” or a return to the old days. Ignore them — reforms continue apace, and Japan is more open for business than ever. This was not a matter of government interference or Japan Inc’s interconnected keiretsu closing ranks. It was simply a bad deal, one that Seven & i did not even reject — it was the other side that chose to unilaterally walk away.
Tellingly, Couche-Tard also revealed it rejected a rival proposal to sell 7-Eleven’s international operations in exchange for equity in the Canadian firm. This, for reasons left unexplained, “would undermine the operational prospects of the combined business.” In other words, we can buy you; you cannot buy us. Which side is closing ranks again?
The ￥2,600 per share offer — which was never actually formalized or submitted to shareholders — was just 17 percent above where the stock traded a few months before reports of the talks first surfaced. The deal, worth as much as Couche-Tard’s entire market capitalization, would involve staggering amounts of debt. And the combination was always likely to be struck down by one or both of the regulators in Japan or the US.
Seven & i’s more measured response showed the company is ready to move on. One of the results of this disruptive year-long affair has been a major management shake-up.
The benefit remains unclear, given the loss of the likes of former Seven & i CEO Ryuichi Isaka, who built the conbini business into a market leader. Left standing now is CEO Stephen Dacus, a man who definitely does understand the business: He is the son of a Japanese mother who worked at his American father’s 7-Eleven store as a teenager.
Now is not the time for him to rest, but, like an enterprising franchise owner, to double down. Seven & i must solve the problems of share underperformance and capital inefficiencies that made Couche-Tard bid in the first place. It is still the target of activist investors, more of whom might emerge in coming weeks if they sense weakness and a chance to exploit the nearly 10 percent drop in the share price on Thursday.
Boosting Seven & i’s share price above Couche-Tard’s offer should be his priority. That, and maintaining the quality of those egg sandos.
Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia, and was the Tokyo deputy bureau chief.
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