Seven & i Holdings Co. agreed to pay $3.3 billion for some Sunoco LP shops and gasoline retailers in an ambitious push by the 7-Eleven convenience chain owner to expand its U.S. footprint with its largest deal on record.
The purchase by the Japanese retailer’s 7-Eleven Inc. unit will add 1,108 gas stations and convenience stores in Texas state and across the eastern U.S., the Japan-based parent said Thursday in a statement. Sunoco’s retail business includes more than 1,300 stores and reported operating income of $103 million last year on revenue of $7.7 billion.
Seven & i is building up its chain in the U.S. while President Ryuichi Isaka is paring back some businesses in Japan as part of broad restructuring in which it sold unprofitable department stores and aims to squeeze more profit from its convenience stores.
“The U.S. is a market of large potential,” Isaka told reporters in Tokyo.
Isaka’s bet on the U.S. is notable as other Japan-based chains including Fast Retailing Co. have struggled to gain traction in the world’s economy, while Japanese carmakers including Toyota Motor Corp. are fighting off Trump administration’s criticism that has rekindled trade tensions.
The deal’s enterprise value is about 10 times the Sunoco assets’ earnings before interest, taxes, depreciation and amortization, Isaka said. That’s in line with the 9.7 times median for convenience store deals since 2012, according to data compiled by Bloomberg.
Isaka said the Sunoco deal is “cheap” compared to the company’s previous acquisitions. The company plans to finance as much as $1.3 billion of the deal through debt, he said. Isaka took the Seven & i helm last year after building up the convenience store business into the retailer’s most profitable unit as its president and COO.
“The cost of the Sunoco acquisition is even higher than those of other acquisitions in recent years and will inevitably impose a financial burden on the Group,” said Ratings & Investment Information Inc. in a note Thursday. The agency also noted that Seven & i has the capacity to improve its finances, and said it’s keeping unchanged the rating for the company.
Capital Investment
Seven & i had cash and equivalents of 1.1 trillion yen ($9.9 billion) as of Nov. 30, according to data compiled by Bloomberg. The company’s capital investment will more than double in current year to 807 billion yen, Isaka said.
As for Sunoco, the gasoline distributor and convenience-store operator reported a $406 million net loss last year, the biggest deficit since at least 2007. Shares of Sunoco, 44 percent owned by Energy Transfer Partners L.P. which owns and operates energy assets, fell 0.9 percent to $23.86 in New York trading Wednesday. The stock has dropped 27 percent over the past 12 months, compared with a 14 percent gain in the benchmark S&P Index.
Shares of Seven & i dropped 1.8 percent in Tokyo trading Thursday, bringing the stock’s total loss to 2.6 percent in the past year.
Gasoline Contract
The 7-Eleven unit plans to sign a contract to receive gasoline from Sunoco for the next 15 years, according to the Seven & i statement Thursday.
Seven & I operating profit will probably increase 6 percent from a year earlier to 386.5 billion yen for the 12 months ending February 2018, the company said in a statement Thursday.
The $3.3 billion deal would be the second-biggest Japanese acquisition of a U.S. company this year, according to data compiled by Bloomberg. Takeda Pharmaceutical Co.’s $4.66 billion purchase of Ariad Pharmaceuticals Inc. is the largest such transaction.
Japanese firms have announced $13.1 billion of mergers and acquisitions of U.S. companies so far this year, almost double the $7.1 billion of deals for the same period in 2016, the data show.
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