Alimentation Couche-Tard Inc., the Quebec-based convenience store giant, faces a complex financial challenge in its bid to acquire global competitor Seven & i Holdings. Analysts suggest that completing this ambitious transaction will require a combination of substantial cost reductions, a significant equity raise, and potentially a U.S. listing to secure the necessary financing.
To manage the expected costs of the acquisition, which have yet to be publicly disclosed, Couche-Tard may need to raise between $12 billion and $18 billion in equity, according to TD Cowen analyst Michael Van Aelst. This equity raise would be essential to maintain manageable leverage levels and cover the transaction’s price tag. Additionally, the company will need to achieve synergies that could contribute over $2 billion in EBITDA within three years of closing the deal, according to Cowen’s estimates.
If successful, this acquisition could offer a substantial upside, with potential earnings per share (EPS) growth of 30%, Van Aelst noted. However, the complex nature of the deal means that equity financing will likely play a key role, which could lead Couche-Tard to consider listing on a U.S. exchange, as suggested by Raymond James analyst Bobby Griffin.
“While many details remain uncertain, our initial assessment of this potential deal is positive, and early investor feedback has been encouraging,” Griffin stated in a note to clients.
Seven & i Holdings operates more than 85,000 locations across 18 countries, including major markets like the U.S., Japan, and Canada. Despite the potential benefits, the deal carries significant uncertainties, including questions about the final offer price, the structure of the deal, and potential regulatory challenges, according to Chris Li, an analyst at Federation des Caisses Desjardins du Quebec. The market’s skepticism is reflected in Couche-Tard’s share price, which fell over 2% on Monday to close at C$81.77 after the bid was announced.
Even if all hurdles are overcome, analysts estimate that the transaction could take up to two years to finalize. Couche-Tard’s track record with large acquisitions is mixed; for example, its attempt to acquire Carrefour SA was blocked by the French government in 2021. However, the company has successfully integrated numerous acquisitions over the years, expanding its footprint to 16,700 stores across 31 countries and territories.
National Bank Financial Markets analyst Vishal Shreedhar noted, “While we generally favor smaller acquisitions in familiar and developed markets, Couche-Tard has demonstrated its ability to execute on larger, more complex deals. This is a big bet in several unfamiliar markets, but history suggests Couche-Tard could navigate it successfully.”
Analysis and Market Impact
For investors, Couche-Tard’s potential acquisition of Seven & i Holdings presents both a substantial opportunity and significant risks. If the company can successfully raise the required equity and achieve the projected synergies, shareholders could see a notable increase in earnings per share, potentially driving strong stock performance in the long term.
However, the challenges are considerable. The need to raise up to $18 billion in equity may dilute existing shareholders, and the complexities of integrating a vast network of over 85,000 stores across multiple countries could strain the company’s resources. Additionally, the deal’s success is not guaranteed, given the potential for regulatory hurdles and the sheer scale of the transaction.
Investors should closely monitor developments, particularly any announcements regarding the structure of the equity raise and potential U.S. listing. These factors will play a critical role in determining the market’s response and the long-term impact on Couche-Tard’s financial health and growth prospects.
