Alimentation Couche-Tard (ATDBCN: Baa1/BBB+) Seven and i formally rejects offer

Bloomberg has proved it has the inside ear. As it reported yesterday Seven and i released its initial rejection to ATD's offer o/n and we finally have a offer price; it was for USD $14.86/share or ¥2121/share in cash - a circa 20-30% premium and values the business at ~$58b on a 7.8x EBITDA multiple. For reference ATD trades at 12x.

The language is quiet negative including "we do not believe, for several critical reasons, that the proposal you have put forward provides a basis for us to engage in substantive discussions regarding a potential transaction" and attempts to hide behind regulation "even if you were able to improve the value element of your proposal very significantly, your proposal does not adequately acknowledge the multiple and significant challenges such a transaction would face from U.S. competition law enforcement agencies in the current regulatory environment and provides no certainty to closing"

We expect its shareholders (particularly institutional and overseas) will continue to remind it of its duties to put shareholder value first. This deal is a litmus test for how new and more open Japanese government M&A guidelines introduced last year will look in practice. Seven and i not doing much to show any change.

We continue to see ATD's bid as more of a non-event than the size would imply. This is a seasoned M&A operator who has a impressive history and continues to show strong credit positive governance on the BS. That aside, investors should be comfortable with eventual M&A linked supply coming; co has pegged dry-powder at $10b (leverage will move to 3.75x) vs. cash on hand of $1.6b. It says use up to this would keep ratings unch and we see little reason to doubt that.