Convenience Store Icon Actions Late-Night Feeding (TSX:ATD) has been making headlines in Canada lately, thanks in part to its much-publicized acquisition of Japan's Seven & i Holdings, best known as the firm behind the legendary 7-Eleven stores.
In fact, having Circle K and 7-Eleven under the same umbrella would create a huge and deep convenience store chain that would open up huge opportunities for shareholders and consumers. Indeed, Couche-Tard has one of the best management teams in the industry.
Given that 7-Eleven isn't doing too well in this environment and that Seven & i's stock (on the OTC markets) hasn't returned much over the past year, if you take out the surge of interest driven by the Couche-Tard acquisition, I'd say a deal should be more welcome.
Couche-Tard may have to work harder to close a deal with 7-Eleven
In a previous article, I expressed my doubts about whether a deal would ever close. There is no shortage of hurdles (regulations in Japan and the United States, agreement on the acquisition price, etc.) to overcome before the deal has a realistic chance of closing. So even if you are looking to buy ATD stock right now to reap the benefits of a successful acquisition, it could take some time (think many quarters or even a year) before a deal is recorded in the record books.
In any case, the 7-Eleven consumer would be a big winner if Couche-Tard executives were to buy the company and leave their mark.
Why? Couche-Tard has done a terrific job of drawing crowds by introducing tasty ready-to-eat items, but, perhaps more importantly, the inclusion of fresh foods. I see Couche-Tard as a more significant force on the grocery scene going forward, likely due to a grocery store acquisition at some point in the future (if a 7-Eleven deal closes, it could be many, many years before the next transformative deal comes along).
Few convenience stores are as electrifying as Couche-Tard!
The increased number of electric vehicles on the road will eventually require more charging stations and fewer fuel pumps, which means a significant investment. And if a company lacks the expertise to make the transition, things could get much worse before they get better.
While not all 7-Eleven stores have gas stations, many of those that do may struggle as the transition inevitably approaches. With other secular challenges to contend with (think the decline of tobacco products), 7-Eleven's future looks brighter if it is absorbed by an industry giant like Couche-Tard. Couche-Tard has had significant success in enabling Norway to enter the EV era. I believe it can do the same in other parts of the world.
Bottom line: ATD stock is a buy as the future of the 7-Eleven deal remains uncertain
For now, a deal could be up in the air as the FTC investigates Couche-Tard's current offer, all while negotiations between Couche and Seven & i move forward.
In the coming months, Couche-Tard will have to court many shareholders to improve the chances of a successful takeover. If a deal goes through, Couche-Tard shares may not have much room to fall, as they are already down nearly 13% from their peak. This is a tough correction that investors can easily accept.