Shares of Circle Ok-owner Alimentation Couche-Tard (TSX:ATD) noticed its shares hit the brakes in current periods, thanks partly to huge information that it’s planning to purchase main comfort retailer competitor 7 & i Holdings, a Japanese-based agency behind 7-Eleven shops. Undoubtedly, if the deal goes by means of, it could possibly be the most important Canadian merger and acquisition (M&A) transfer of the last decade.

After all, that’s an enormous if. Couche-Tard must appease numerous regulators. Whether or not that entails divesting a number of of seven & i Holdings’s property (it owns extra than simply comfort shops) or extra, I feel that the Couche’s administration staff will do their finest to make sure the whole lot is in an amazing spot and {that a} deal could be struck.

Certainly, if Couche-Tard senses synergies, you may wager that it’ll be greater than keen to go after a deal. Whereas Couche-Tard has a sound steadiness sheet and money stream stream, shopping for up 7-Eleven’s dad or mum firm will entail an entire lot extra financing. Which means new share issuance and a better debt load.

The synergies could possibly be large for Couche-Tard

Although buyers fear about getting diluted as ATD probably appears to record on U.S. exchanges, I’m in no way fearful, as a 7 & i Holdings deal would probably lead to some kind of “1 + 1 = 3” synergistic state of affairs. Moreover, Couche-Tard’s managers have been very vocal about increasing into the Asian area, a comparatively untapped a part of the globe that would entail not solely better progress however maybe higher margins.

Additional, 7-Eleven is a superb franchise with a model title that’s synonymous with comfort shops. It’s the legendary agency behind the Slurpee. And I feel that Couche-Tard received’t have to rebrand any of the areas, given the huge magnitude of brand name affinity the 7-Eleven banner entails. Arguably, 7-Eleven is an even bigger model than Circle Ok.

Couche-Tard could be even stronger with Circle Ok aboard

In any case, I feel Circle Ok, 7-Eleven, and Couche-Tard (in Quebec) can co-exist beneath the identical umbrella. Additional, after a few years of rebranding (to Circle Ok) efforts, I feel administration is extra centered on driving merchandise gross sales and seizing the gas-fuelled car-to-electric car (EV) transition. Ought to a 7-Eleven deal undergo, I see Couche-Tard as on the excessive street to succeeding within the EV age because it bolsters its merchandising whereas utilizing its even better economies of scale to drive costs down.

Although some might view a 7-Eleven deal as unlikely to undergo anytime quickly, I feel such a deal may cross ought to Couche-Tard show it might probably ship worth for shoppers. On the finish of the day, comfort retailers have to adapt to the brand new age. That entails embracing synthetic intelligence, frictionless checkout, cell apps, supply, and all the kind.

Backside line

Such investments would have a better impact if 7-Eleven have been to be part of the Couche-Tard portfolio. As one of many few early bulls on the deal, I’d not shrink back from shopping for shares of ATD on the current dip. They’re flirting with correction territory once more after sliding shut to six% in per week.

Additional, with earnings on faucet within the coming weeks, it’ll be attention-grabbing to see how ATD inventory reacts from right here. I feel the 7-Eleven deal-induced pullback is overblown now. Briefly, a 7-Eleven deal could possibly be a match made in heaven, and any additional weak point in ATD inventory looks like a shopping for alternative for long-term buyers.