Shares of convenience store icon Alimentation Couche-Tard (TSX:ATD) have been hogging the Canadian headlines lately, thanks in part to its widely-publicized pursuit of Japan’s Seven & i Holdings, better known as the firm behind the legendary 7-Eleven stores.
Indeed, having Circle K and 7-Eleven under the same umbrella would create a profound and massive convenience retailer that would unlock massive opportunities for shareholders and consumers. Indeed, Couche-Tard has one of the best management teams in the industry.
With 7-Eleven not exactly faring all too well in this environment, with a lack of returns in Seven & i shares (in the over-the-counter markets) over the past year when you remove the Couche-Tard takeover interest-fuelled surge, I’d argue that a deal should be more welcomed.
Couche-Tard may need to extend itself to get a 7-Eleven deal done
In a prior piece, I expressed my doubts about whether a deal would ever close. There’s no shortage of hurdles (Japan and U.S. regulations, agreement on the takeover price, and more) to clear before the deal has a realistic chance of closure. So, even if you are looking to buy shares of ATD right here for the benefits of a successful takeover, it could take some time (think many quarters or even a year) before a deal is put into the record books.
In any case, the 7-Eleven consumer would be a big winner if Couche-Tard’s managers were to buy up the firm and leave their mark.
Why? Couche-Tard has done a magnificent job of drawing crowds via the introduction of tasty ready-to-eat items, but, perhaps more importantly, the inclusion of fresh food. I see Couche-Tard as a more significant force in the grocery scene in the future, likely due to a grocery acquisition at some point down the road (if a 7-Eleven deal is struck, it could take many, many years before the next transformative deal happens!).
Few convenience stores are as electrifying as Couche-Tard!
More electric vehicles (EVs) on the road will eventually require more charging stations and fewer fuel pumps. That entails a hefty investment. And if a firm lacks the expertise to pull off a transition, things could be much uglier before they improve.
Though not all 7-Eleven stores are equipped with gas stations, many of the ones that are may struggle as the transition inevitably comes around the corner. With other secular challenges to tackle (think the fall of tobacco products), 7-Eleven’s future seems brightest if it’s to be gobbled up by an industry giant such as Couche-Tard. Couche-Tard, has been a significant success in enabling Norway to dive into the EV age. I think it can pull it off in other parts of the globe.
The bottom line: ATD stock is a buy as the 7-Eleven deal’s future remains uncertain
For now, a deal could be up in the air as the FTC probes Couche-Tard’s current offer, all while negotiations between Couche and Seven & i move on.
Over the coming months, Couche-Tard will need to court many to improve the chances of a successful takeover. If a deal happens, Couche-Tard stock may not have more room to fall, given it’s already down close to 13% from its high. That’s a tough correction that’s more than buyable for investors.
