The company will have to raise up to $18 billion equity
Quebec-based convenience store operator Alimentation Couche-Tard Inc. faces difficulties in its bid to acquire global rival Seven & i Holdings. This includes massive cost-cutting, a large store of equity and a potential US listing to complete the deal, according to analysts.
According to TD Cowen analyst Michael Van Aelst, the company needs to raise somewhere between $12 billion and $18 billion of equity to manage leverage and cover the transaction price that has yet to be announced. In addition, Couche-Tard will need to navigate the synergies, potentially adding over $2 billion in EBITDA within three years of the deal’s closing, according to Cowen’s calculations.
If successful, Couche-Tard could potentially see a 30% increase in earnings per share, Van Aelst stated. A portion of the financing will likely come from equity, which could prompt the company to consider a U.S. listing, as suggested by Raymond James Financial Inc. analyst Bobby Griffin.
“Lastly, while there are still a lot of unknowns and questions, our initial take on this potential deal is favorable (early investor feedback has been favorable as well),” Griffin said in the Monday note.
There are uncertainties surrounding the potential transaction, including the offer price, deal structure, and regulatory challenges, according to Chris Li, an analyst at the Fédération des Caisses Desjardins du Québec who covers Couche-Tard.
He also noted that the market's reaction suggests the deal has a lower chance of succeeding, as evidenced by Couche-Tard's stock price dropping over 2% on Monday to close at C$81.77 following the announcement.
And even if the challenges are overcome, analysts predict the deal will take around two years to complete.
Couche-Tard has failed in other takeover attempts, like the Carrefour SA bid that the French government blocked in 2021, National Bank Financial Markets analyst Vishal Shreedhar wrote in a note to clients Tuesday. Despite that, the company has a strong record of successful acquisitions, having expanded to 16,700 stores across 31 countries and territories, primarily through mergers.
“We have a preference for smaller deals in familiar/developed markets coupled with ongoing focus on organic growth, and capital return,” Shreedhar wrote. “This is a big bet in many unfamiliar markets; that said, history suggests ATD could execute well.”
