By Makiko Yamazaki, Kane Wu and Anton Bridge
TOKYO (Reuters) -Japan's Seven & i said on Monday it had received a preliminary takeover offer from Canada's Alimentation Couche-Tard, making the 7-Eleven owner the largest-ever Japanese target of a foreign buyout.
While the outcome of the bid is anything but certain, news of it sent shares of Seven & i surging by almost 23% in Tokyo, valuing the company at around 5.6 trillion yen ($38 billion). Couche-Tard, which operates Circle-K convenience stores, is valued at roughly $58 billion.
The proposal is to buy the entire company, according to two sources familiar with the matter who were not authorised to speak to the media and declined to be identified.
Seven & i has formed a special committee to review the proposal, it said in a statement, adding no decision has been made by either the committee or its board of directors. The announcement followed a report on the bid by the Nikkei newspaper.
Alimentation Couche-Tard did not immediately respond to a request for comment outside of usual working hours. The talks are "at a very early stage," said one of the sources.
A deal for the whole company would be the largest ever buyout of a Japanese firm by an overseas company, LSEG data shows, after the 2018 $18 billion deal for Toshiba's memory chip business by a consortium led by private equity firm Bain.
The 7-Eleven operator has been on a push to bolster its flagship convenience store chain globally, part of a larger restructuring that has seen it sell off some lower-performing assets in the wake of pressure from shareholder ValueAct Capital about its asset allocation.
Since last year, it has announced the closure of dozens of Ito-Yokado supermarkets, exited its apparel business, and completed the sale of its Sogo & Seibu department store unit.
Couche-Tard is not expected to have an easy time clinching a deal however.
"I strongly doubt that this takeover proposal will come to fruition, especially considering Seven & i's resistance to divesting even their legacy businesses," said Oshadhi Kumarasiri, a LightStream Research analyst who covers Seven & i and publishes on Smartkarma.
"Unless the offer comes with a substantial premium over Seven & i's recent highs, it seems improbable that the management would even consider this idea."
JAPAN IN FOCUS
For investors, the bid nonetheless emphasises the growing attractiveness of Japanese assets that were long shunned.
Changes in corporate governance have helped underscore a sense of renewed relevance for Japan and Japanese companies, said Duncan Clark, chairman and founder of investment advisory firm BDA.
Japan was home to one of the world's best-performing stock markets last year and this year the Nikkei index has hit a series of record highs as investors have applauded governance reform.
"This is another example of the attractiveness of the Japanese market for offshore buyers," said Manoj Jain, co-founder and Co-CIO of Hong Kong-based Maso Capital.
"Coupled with private equity interest, we expect this trend to continue driven by underlying asset values, the ability for efficiency gains and the cost of funding," Jain said.
Founded in 1980, Couche-Tard has grown from a single store in Quebec to a global network of convenience stores and gas stations mostly through acquisitions. The deal, if agreed, would follow Couche-Tard's $3.3 billion purchase of some of TotalEnergies' European petrol stations last year and a $20 billion bid for Europe's largest food retailer Carrefour which was rejected in 2021 by the French government on food security concerns.
In 2020, Seven & i and Couche Tard were rival bidders to take over U.S. gas station chain Speedway, which the Japanese company ended up purchasing for $21 billion.
($1 = 146.2200 yen)
(Reporting by Rocky Swift, Anton Bridge, Makiko Yamazaki and Kane Wu; Additional reporting by Scott Murdoch and Miyoung Kim; Editing by David Dolan and Edwina Gibbs)