The Fight for 7-Eleven: A Detailed Summary

Podcast: The Journal
Hosts: Ryan Knutsen and Jinju Lee
Release Date: November 19, 2024
Produced by: Spotify and The Wall Street Journal

1. Introduction to 7-Eleven’s Cultural Significance

The episode opens with Ryan Knudsen providing a vivid description of a typical American 7-Eleven store, highlighting its iconic products like the Slurpee, Big Gulp, and various snacks (00:06). This sets the stage for discussing 7-Eleven’s deep-rooted presence in American daily life.

Ryan Knudsen:
“Yesterday, I popped into one by the office... But I wasn't at 7:11 for culinary reasons. I was there for journalism.” (00:06)

2. The Bidding War: Couche Tard's Pursuit

Ryan introduces the central narrative: a significant bidding war involving 7-Eleven. The Canadian company, Alimentation Couche-Tard, which owns the Circle K chain, has shown keen interest in acquiring 7-Eleven's parent company, 7-Eleven Japan Co., Ltd.

Ryan Knudsen:
“Right now, 711 is the subject of a major bidding war. A Canadian company really wants to buy it, and they're offering to pay a lot of money for it. But 711 is playing hard to get.” (00:06)

3. 7-Eleven’s Evolution and Japanese Dominance

Originally founded in Texas in 1927 as Southland Ice Company, 7-Eleven rebranded in the 1940s to reflect its extended hours of operation. While it became an American convenience store staple, Japan embraced and expanded the brand more fervently, making it the country with the highest number of 7-Eleven stores globally.

Jinju Lee:
“It's a brand that people really trust, and it's a place that people regularly frequent... 7-Elevens in Tokyo are literally next level.” (03:44)

Notable Features in Japan:

• Superior food offerings, including items like crunchy seaweed rice balls and soft, fluffy breadsticks filled with chocolate cream.
• Collaboration with local experts, such as rice masters in Kyoto, to maintain high-quality standards (04:05).

4. Couche-Tard’s Strategic Interest

Couche-Tard aims to leverage 7-Eleven Japan's expertise in fresh food offerings to enhance its own operations. Acquiring 7-Eleven would significantly boost Couche-Tard’s market share, as 7-Eleven boasts over 80,000 stores worldwide.

Jinju Lee:
“Couche-Tard wants to improve their food offerings. Seven eleven has the expertise from Japan... they have a track record of running a very successful fresh foods business.” (06:35)

Ryan Knudsen:
“Couche-Tard buying 711 would be a massive merger and it would allow Couche-Tard to dramatically increase its market share.” (06:50)

5. The Initial Offer and Rejection

In August, Couche-Tard made an initial offer of approximately $39 billion to acquire 7-Eleven’s parent company, 7-Eleven Japan Co., Ltd. However, 7-Eleven rejected this offer, labeling it as “grossly undervaluing the company” and citing multiple regulatory barriers, particularly within the U.S. market.

Jinju Lee:
“Couche-Tard approached 7-Eleven first in August and they offer about $39 billion and 7 and I rejected that offer... there would be multiple regulatory barriers.” (07:17)

6. Couche-Tard’s Enhanced Offer

Undeterred by the rejection, Couche-Tard increased its bid by $8 billion, bringing the total offer to $47 billion. This revised proposal garnered excitement among some of 7-Eleven Japan’s investors.

Jinju Lee:
“Couche-Tard approached 7-Eleven first in August and they offer about $39 billion and 7 and I rejected that offer... say the price was grossly undervaluing the company.” (07:17)

Note: Ryan does not provide a timestamped quote here, but he explains the increase in the offer.

7. 7-Eleven’s Counteroffer: Going Private

In response to Couche-Tard's increased bid, 7-Eleven’s management, in collaboration with Japanese investors and three Japanese banks, proposed a competing offer to take the company private for $58 billion. This would constitute the largest leveraged buyout in history, with approximately two-thirds of the funding derived from loans.

Ryan Knudsen:
“When a company goes private, it means it's taken off the stock market and shareholders get a big payout. But for 7 11, going private comes with a big debt.” (10:16)

Jinju Lee:
“...are they so averse to a foreign takeover that they are willing to put up that amount of money?” (09:01)

8. Cultural and Economic Implications

The episode delves into the cultural resistance within Japan against foreign takeovers of beloved domestic brands. This reluctance is intertwined with national pride and concerns over maintaining control over a significant cultural icon.

Jinju Lee:
“From the perspective of seven eleven's current management, they might be skeptical that a foreign company with zero experience in Japan could run the business successfully.” (10:52)

Ryan Knudsen:
“This sort of thing doesn't just happen in Japan, of course. This year here in the U.S. the Biden administration opposed a deal for a Japanese company to buy U.S. steel.” (11:31)

9. Japanese Corporate Reforms and Shareholder Pressure

Traditionally, Japanese companies have been hesitant to entertain foreign acquisitions, often prioritizing stability over aggressive shareholder returns. However, recent reforms initiated by former Prime Minister Shinzo Abe aim to make companies more shareholder-friendly, encouraging independent oversight and measures to prevent stock undervaluation.

Jinju Lee:
“They introduced measures to try to make companies more shareholder friendly... require more independent oversight of company executives.” (12:20)

Ryan Knudsen:
“They try to make the stocks that are listed on there more attractive so that they can attract more investment.” (13:09)

These reforms are crucial in understanding 7-Eleven’s management’s willingness to counter Couche-Tard’s offers, signaling a shift towards balancing cultural preservation with investor interests.

10. Potential Outcomes and Future Prospects

The episode outlines three possible scenarios moving forward:

1. Couche-Tard Increases Its Offer: Leading to the acquisition of 7-Eleven Japan.
2. 7-Eleven Proceeds with the Buyout: Taking the company private with significant debt obligations.
3. Rejection of Both Offers: Maintaining independence but facing pressure to deliver better financial returns to satisfy investors.

Jinju Lee:
“There’s, I guess, three potential scenarios... they reject Couche-Tard, the management buyout doesn't go through, and the company just says, okay, we're just going to continue on this path.” (14:53)

Ryan Knudsen:
“What happens to 711 will be a big indicator of how well these reforms are working.” (13:34)

11. Conclusion: Indicators of Broader Economic Trends

The outcome of this bidding war is not just about 7-Eleven but also serves as a barometer for the effectiveness of Japan’s recent corporate reforms. A successful management buyout indicates a move towards greater shareholder accountability, while a foreign acquisition could signal increased globalization of Japanese businesses.

Jinju Lee:
“The fact that Japanese companies tend to just sort of wave off takeover offers... Does that tell us anything about the fact that seven Eleven's parent company put in this private bid?” (14:11)

Ryan Knudsen:
“If the competing counter bid is successful, it shows that Japanese companies are evolving to balance cultural integrity with investor pressures.” (14:50)

Key Takeaways:

• 7-Eleven’s Dual Identity: While an American brand, its Japanese operations hold substantial global influence.
• Strategic Acquisition: Couche-Tard aims to harness 7-Eleven Japan’s success in fresh food to enhance its own market position.
• Cultural Resistance vs. Corporate Reforms: Balancing national pride with the need for shareholder value is at the heart of the ongoing negotiations.
• Future Implications: The resolution of this bidding war will provide insights into Japan’s evolving corporate landscape and its openness to foreign investments.

Notable Quotes:

• Ryan Knudsen:
  “But I wasn't at 7:11 for culinary reasons. I was there for journalism.” (00:06)
  “When a company goes private, it means it's taken off the stock market and shareholders get a big payout.” (10:16)

• Jinju Lee:
  “7-Elevens in Tokyo are literally next level... It's so good.” (03:44)
  “Couche-Tard wants to improve their food offerings. Seven eleven has the expertise from Japan.” (06:35)
  “From the perspective of seven eleven's current management, they might be skeptical that a foreign company with zero experience in Japan could run the business successfully.” (10:52)

Additional Reporting By:
Megumi Fujikawa, Adriana Marqueze, and Kosako Narioka

This episode of The Journal provides an in-depth analysis of the high-stakes battle over 7-Eleven, intertwining business strategy with cultural dynamics, and highlighting the broader implications for Japanese corporate practices and global business trends.