Couche-Tard founder Alain Bouchard and CEO Alex Miller at a press conference in Tokyo in March on their bid to buy Seven & i. The company has withdrawn its takeover offer, but the saga shows banks and other institutional investors will support big ideas, Andrew Willis writes.Kim Kyung-Hoon/Reuters
This will be of cold comfort to Alimentation Couche-Tard Inc. ATD-T founder Alain Bouchard, but the Quebec entrepreneur has shown domestic chief executives with global ambitions that they can count on support from Canada’s banks and institutional investors.
Late Wednesday, Mr. Bouchard, aged 76, walked away from the deal that would have capped an incredible career by abandoning a US$46-billion bid for 7-Eleven parent Seven & i Holdings Co. Over a near year-long courtship, Tokyo-based Seven & i refused to engage in a meaningful manner.
Mr. Bouchard, Couche-Tard’s executive chair, and CEO Alex Miller did the sensible thing by pulling the bid. Even if it meant giving up on a story that started with a single outlet in Laval in 1980 and would have ended with the world’s largest convenience store chain.
For Canadian CEOs and boards facing the defining challenge of how to break out of the relatively small domestic market onto a world stage, Mr. Bouchard is a role model, even if he couldn’t close the Seven & i takeover.
Every domestic company’s default expansion strategy – moving south into U.S. markets – is now subject to the whims of a protectionist president. So Canadian CEOs know they can find support if they want to emulate Couche-Tard’s expansion into Asia, Seven & i’s core market, or Europe, where the chain used previous acquisitions to become a dominant player.
To make its audacious bid for Seven & i and satisfy securities regulations, Couche-Tard had to put together what is known as a “fully financed” offer. The retailer needed to line up banks willing to loan tens of billions, along with potential buyers for billions of dollars worth of its stock.
If Couche-Tard had been successful, it would have tapped domestic institutions for the largest debt and equity financing the country has ever seen. (Couche-Tard stock price popped up by 7 per cent on Thursday when it become clear it wouldn’t be flooding the market with shares to pay for the acquisition.)
Banks would have put Couche-Tard through the ringer to win these loans. While the company has traditionally been quick to pay back debt shouldered during acquisitions, buying Seven & i would have meant moving into new markets during a period of economic uncertainty.
Domestic pension plans and other institutional investors would have been equally skeptical about loading up on Couche-Tard stock, on concerns it would fall short on cost-cutting goals and profitability targets at a Seven & i chain that has underperformed for years.
There is a reason Montreal fund managers Daniel Brosseau and Peter Letko have been banging the drum for increased investment in Canadian companies by domestic pension plans. With a whole world of stocks to choose from, the Maple 8 fund managers typically find better risk-adjusted returns from companies outside our borders.
Mr. Bouchard and Mr. Miller overcame all those headwinds. Couche-Tard had all the money it needed lined up when its team sat across the table from stone-faced Seven & i executives.
Goldman Sachs Group Inc., Royal Bank of Canada and Bank of Nova Scotia signed letters stating they were “highly confident” Couche-Tard could borrow as much as it needed. Approvals for those loans would have gone to the lenders’ boards.
When it came to raising equity, Caisse de Dépôt et Placement du Québec executives made it clear they were in Couche-Tard’s corner, as the lead investor in a massive stock offering.
Domestic institutional investors have stepped up in the past to back local heroes striving to be global champions, and been rewarded for their faith.
In 2020, a consortium of pension plans – the Caisse, the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board – committed $3.2-billion to fund a portion of insurer Intact Financial Corp.’s $12.3-billion takeover of British rival RSA Insurance Group PLC. Intact stock has more than doubled since the acquisition.
Bank and pension fund commitments to Couche-Tard’s bold strategy means domestic CEOs and boards can take their ambitions to a new level. Market leaders in most sectors – energy, mining, telecom, retail, finance – can count on matching the US$46-billion package pulled together by the country’s largest corner store owner.
Mr. Bouchard fell just short of his goal of building the world’s biggest convenience store chain, for now. The Couche-Tard leader’s ability to finance his vision shows the rest of corporate Canada there are banks and pension plans willing to back big dreams.