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US antitrust regulators are likely to challenge any proposal by Canadian retailer Alimentation Couche-Tard to combine with the Japanese operator of 7-Eleven, two people briefed on the matter said, over concerns a deal would increase prices for consumers and damage the labour market.
A tie-up between Couche-Tard, which operates the Circle K brand, and Japan’s Seven & i, which controls the world’s biggest convenience store chain, would create one of America’s largest retail chains.
The deal, which would be the biggest takeover of a Japanese company ever attempted by a foreign buyer, was also likely to draw scrutiny in Tokyo under the Foreign Exchange and Foreign Trade Act, said two M&A lawyers in Japan.
US regulators have yet to examine the details of any proposal as the two companies have not reached an agreement but people close to them said the deal was expected to come under scrutiny over its potential impact on shoppers.
“It’s still early to make an assessment as we don’t have an agreed deal but you can expect this deal to get challenged,” said a person close to top US regulators.
Another person said that if the two companies were to agree a deal they would have to offer significant remedies or divestitures to get US regulators’ approval.
A third person said a merger between Seven & i and Couche-Tard would be treated similarly to the $24.6bn deal between US supermarket giants Kroger and Albertsons. The Federal Trade Commission has sued to block the supermarket deal, alleging it would eliminate competition between the two companies, increase prices for groceries and harm product quality and consumer choice. On Monday Kroger sued the FTC to unblock the deal.
7-Eleven operates more than 12,500 convenience stores in the US, while Couche-Tard has more than 7,000 retail stores, according to data from food consultancy group Technomic.
Combined, they would control nearly 20,000 stores across most US states, which would be nearly 10 times more than the next biggest player, Casey’s, and employ more than 200,000 people.
Antitrust regulators in the US have been aggressive during the Biden administration, challenging deals in court as well as in public opinion, leading many companies to walk away from transactions for fear of being blocked.
Bankers close to Seven & i said they thought the feasibility of a takeover was low and cited scrutiny by both US regulators and potentially the Japanese government if the foreign takeover became politicised. Convenience stores in Japan are widely regarded as critical infrastructure in the event of an earthquake.
However, lawyers who have worked on large cross-border deals said antitrust objections from US regulators could be overcome by selling some stores. Couche-Tard might be able to satisfy the FTC through the sale of between 750 and 1,000 stores, said analysts at two funds.
Lina Khan, chair of the FTC, and Jonathan Kanter, head of antitrust at the Department of Justice, have applied a more expansive approach to competition rules by focusing beyond the pricing of goods and services on all aspects of market power.
A combination of Couche-Tard and Seven & i would risk raising the prices of beverages and food items as well as limiting the choice of jobs and employers in certain markets where the two companies compete directly with one another, said people close to the regulators.
Although many on Wall Street hope that antitrust enforcement will be eased under a new Harris or Trump administration, both US presidential candidates are expected to give a clear mandate to regulators that any deals that increase inflation or cut jobs should be blocked.
Seven & i agreed to acquire the Speedway petrol stations business for $21bn in 2020, giving the Japanese company an even bigger footprint in the US.
Couche-Tard announced on Monday that it had expanded its network by buying 270 convenience stores and petrol stations across five US states, including Indiana, Pennsylvania and Ohio from supermarket chain Giant Eagle.
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