Canadian convenience store icon Alimentation Couche-Tard (TSX:ATD) seems to be getting closer to what could be its most transformative acquisition to date. Of course, the company’s pursuit of 7-Eleven parent company, 7 & i Holdings, has been met with various roadblocks, setbacks, and, of course, concerns from some shareholders.
Still, there’s room for Couche-Tard investors to be a tad more optimistic following the recent signing of a non-disclosure agreement (NDA), which allowed the Quebec-based retail juggernaut to have a closer look at some of the more intimate details of the business. Indeed, Couche-Tard is putting in more than its fair share of due diligence with this potential mega-merger, at least in my opinion.
Even if the firm pays a bit more than expected to get the deal done, I’m confident that management will make the move that’d allow it to best play the long-term game. Indeed, the hefty price of admission is worth paying if the longer-term synergies to be had are far greater.
And while a pricey-looking mega-acquisition may be off-putting to some investors, especially those who would prefer a series of tuck-in deals, I think the move could ultimately be transformative enough to pave the way for many years, if not decades, worth of above-average earnings growth. Indeed, 7-Eleven is synonymous with convenience stores.
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Couche-Tard has what it takes to get the deal done in 2025
As such, it’s not a mystery why Couche-Tard’s top bosses have had the long-time rival on their radar over the decades. With industry headwinds weighing and 7-Eleven stores (at least outside of Japan) facing some pretty stiff challenges in recent years, I think there hasn’t been a better time for Couche-Tard to get a deal done. I think they’re effectively coming to the rescue to reinvigorate a legendary brand that’s kind of lost its way of late.
Indeed, Circle K and 7-Eleven together would pretty much form a convenience store behemoth that would be impossible to top. Indeed, the moat would be one of the widest in global retail. And the potential economies of scale, I believe, could be substantial enough to power a new era of growth as food (groceries and ready-made) becomes that much more important than fuel.
While it’s tough to time when or if a deal could be inked, as Couche-Tard continues rolling up its sleeves and putting in the homework while also tackling regulatory hurdles and keeping things fair and friendly with the management team over at 7 & i Holdings, I think that it may be just a matter of time before the historic deal is finalized.
Of course, some unknown hurdles could ultimately make the mega-merger fall through. And while there’s no shortage of regulatory roadblocks that could get in the way (or at least delay things by some number of weeks or months), I’m inclined to think a successful deal is likelier than not at this critical juncture.
So, where will that put Couche-Tard in three years?
I think the Canadian retailer will be a heck of a lot more powerful as it takes its growth plans to the next level. Indeed, even without winning 7-Eleven, the company has the means to open hundreds of new stores through 2028. And, of course, if Couche-Tard can’t acquire 7-Eleven, it’ll probably buy something else as it aims to stay ahead as the wave of technological disruption and innovation moves in.
Regardless of what the future holds for Couche-Tard on the front of mergers and acquisitions, I believe shares of ATD will be in the triple digits in three years or so. As such, I’d not shy away from buying at around $69 and change per share. As a shareholder myself, I’ll be rooting for a successful deal!
